On Nov. 1, 2009, CIT Group Inc. reported that its board of directors - with the support of its debt holders - voted to proceed with a restructuring plan as part of the company's Chapter 11 bankruptcy. CIT provides financing to about 1 million small and mid-sized businesses and is among the largest lenders serving the U.S. retail sector. Its subsidiary CIT Group Funding Co. of Delaware LLC is also a party to the action.
CIT received the relief it sought from the U.S. Bankruptcy Court for the Southern District of New York regarding its "first day" motions, which will allow the company to maintain normal daily operations. CIT said that none of its other subsidiaries, including one of its largest, Utah-based CIT Bank, are part of the Chapter 11 action.
"None of CIT's operating subsidiaries, as well as its operating segments, are included in the filings," said Curt Ritter, CIT's Directors of External Communications & Media Relations. "All of these entities are expected to continue uninterrupted operations. More importantly, approximately 90 percent of our debt holders cast affirmative votes for our reorganization."
The company expanded its current $3 billion senior secured credit facility by an additional $4.5 billion. This influx of funds, which is being provided by a "diverse group of lenders including many of CIT's bond holders," will be secured by additional collateral that becomes available as a result of the company's refinancing.
CIT also secured an incremental line of credit of $1 billion from securities and investment firm Icahn Capital LP to provide supplemental liquidity as it reorganizes. Under the restructuring plan, CIT expects to reduce total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability. "We believe this secured financing will serve the best interests of all stakeholders and will allow us to better position CIT for the future," said Jeffrey M. Peek, CIT's Chairman and Chief Executive Officer. "This expanded credit facility will enable us to continue serving our existing small businesses and middle-market customers as we advance our restructuring plan."
The plan is designed to streamline the company's debt and capital restructuring. And because of the near unanimous support of its debt holders, CIT is asking the court for quick confirmation of the plan. The court scheduled a hearing to consider CIT's "prepackaged plan of reorganization" for Dec. 8, 2009.
"These motions include requests to continue the payment of wages, salaries and other employee benefits," Peek said. "Additionally, the company has filed a motion seeking the necessary relief from the court to pay its vendors and certain other creditors in full.
"The decision to proceed with our restructuring will allow CIT to continue to provide funding to our small businesses and middle-market customers, two sectors that remain vitally important to the U.S. economy.
We remain in constant communication with our clients to ensure continued access to the services they need to run their business. This solution gives CIT an opportunity to enter into our reorganization well-prepared and positioned for a swift emergence."
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