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CIT Group Inc., the 101-year-old commercial lender, won court approval of a plan to cancel old shares, shed debt and exit bankruptcy court protection with new stock worth as much $11 billion.
U.S. Bankruptcy Judge Allan Gropper in New York today confirmed CIT's so-called prepackaged Chapter 11 reorganization plan, which already had creditor support when CIT filed for bankruptcy last month. The United States won't recover much, if any of the $2.3 billion in taxpayer money used in a bailout of CIT, and shareholders will be wiped out.
“I recognize, literally, billions of debt have agreed to this plan,” Gropper said, adding that the plan could take effect on Dec. 10. “It's an enormous achievement to have gotten the vote that you've gotten.”
After 5½ weeks in bankruptcy, CIT's confirmation hearing moved quickly because of strong creditor support. Gropper directed New York-based CIT's witnesses to give testimony on “narrow” issues raised by objectors, most of whom were individual bond or stockholders representing themselves in court via telephone.
“The individuals on the phone may be losing their life savings, or funds that are extremely important to them,” the judge said. “That is probably true of many people throughout the country.”
CIT's plan reduces the company's debt by eliminating $10.5 billion to $11 billion in unsecured debt. It extends maturity dates of the company's bank and bond debt.
CIT solicited support from its large debt holders in advance of the bankruptcy, with an exchange offer that covered $34.3 billion in debt.
Greg Galardi, a lawyer for the company, says that senior unsecured debt holders get around 70 cents on the dollar plus equity in the new company. Holders of preferred stock might also get a contingent recovery depending on the value of the company's new stock, he added.
CIT Group's reorganization plan, in a modified second draft, had 15 objections, mostly informal, which relate to holders of common stock who wanted shares of the new company, noteholders who wanted to be paid in full, and bondholders who wanted their debt reinstated.
CIT sought bankruptcy protection Nov. 1, citing losses on subprime mortgages and tightening credit markets, and listing assets of $71 billion and debt of $64.9 billion.
James Kilman, managing director at Morgan Stanley, an adviser to CIT Group, said in a statement supporting CIT's confirmation that equity in the new company will be worth $5 billion to $11 billion, based on a Dec. 31 exit.
The case is In re CIT Group Inc., 09-16565, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
— By Tiffany Kary/Bloomberg News
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