CIT Group Exits Bankruptcy, Wiping Out Old Holders (CIT, CITGQ)

CIT Group Inc. (OTC: CITGQ) is emerging from bankruptcy.  The company has just announced that its prepackaged plan of reorganization was confirmed by the United States Bankruptcy Court for the Southern District of New York, and more importantly that it anticipates emerging from bankruptcy on December 10, 2009.  This may be good for the company and may be good for the debt holders, but you can probably guess how this worked out for  the old holders of common stock.

CIT will have a stronger capital structure and improved liquidity profile.  The company noted that this will reduce CIT’s total debt by about $10.5 billion.  It will simultaneously defer debt maturities for three years and will enhance capital ratios to levels that exceed regulatory requirements.

On the management side of the restructuring, CIT said its new board of directors will consist of 13 directors and that includes seven new independent directors put in by CIT’s debtholders, five continuing directors and the new Chief Executive Officer of CIT. The company is continuing its search for a new CEO.

CIT is committing $500 million to support its Small Business Lending group to fund government guaranteed loans in the Small Business Administration 7a and 504 lending programs, as well as $1 billion in funding for its Vendor Financing operating segment.  These commitments are in addition to the previously announced $1 billion in funding for its Trade Finance operating segment. CIT also expects to generate new loans across its other lending and leasing platforms in 2010.

CIT’s existing common and preferred stock, along with all non-reinstated debt, will be cancelled effective upon the exit from bankruptcy; distributions of new debt and equity securities will occur “as soon as practicable thereafter.”  The ‘new CIT’ will trade under the old CIT ticker on the NYSE and CIT will issue 200 million new shares eligible to debt holders in exchange for claims against the debtors.

Let this be yet another lesson… Investors buying Pink Sheet and Bulletin Board common stock in companies in bankruptcy court just about always get negated entirely.

Jon C. Ogg
December 8, 2009