FT: CIT creditors back protection plan

Discussion in 'Bankruptcy' started by kuacou, Oct 31, 2009.

  1. kuacou

    kuacou Guest

    CIT creditors back protection plan

    By Henny Sender in New York
    Financial Times
    Published: October 30 2009 23:27

    Creditors of CIT voted overwhelming to support a prepackaged
    bankruptcy protection filing, ending months of uncertainty for the
    troubled US commercial lender, as activist investor Carl Icahn threw
    his support behind the filing at the last moment.

    The filing could come as early as Sunday and affects only the holding
    company and one finance unit.

    The pre-packaged plan means passage through the bankruptcy court is
    expected to be swift and smooth with the company emerging as soon as
    the end of the year.

    Creditors say they plan to install a new management team soon, though,
    from the perspective of CIT's borrowers, CIT's new status will not
    make any difference.

    The outcome of the vote represents at least a partial defeat for Mr
    Icahn, who had sought to derail the plan.

    Although the company obtained a $1bn line of credit from Mr Icahn in
    return for his support for the plan, it is unlikely that CIT will
    actually need to draw down the funds, people familiar with the matter

    "It is a way to give him face, throw him a bone and get insurance for
    CIT," one leading creditor said. A call to Mr Icahn's office was not

    Operating units of CIT received $3bn in rescue finance from a small
    group of investors at the end of July and a $4.5bn secured financing
    facility more recently from a much broader group of the company's

    Both financings and a $3bn line of credit from Goldman Sachs obtained
    in June of 2008 - since reduced to $2.12bn - were far more expensive
    than CIT's borrowing cost before the financial meltdown.

    CIT's troubles began when the market for wholesale funding dried up
    last year.

    Without a stable source of capital such as deposits, CIT had to pay up
    for funds.

    That meant the gap between the cost of its own money and the rate it
    could charge its borrowers came under pressure.

    Many financial firms that once had investment-grade credit ratings
    have found it a challenge to make the adjustment to below investment
    grade status, especially as financing became scarce.

    CIT's filing represents a slight embarrassment for the government,
    which gave the lender to small and medium enterprises bank holding
    company status and said the company was adequately capitalised less
    than a year ago.

    However, the government declined to offer financial support to CIT in
    contrast to its treatment of other companies that became bank holding
    companies such as GMAC.

    Now GMAC is seeking a third infusion of funds.

    kuacou, Oct 31, 2009
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