CIT Group Inc.’s holding company filed for Chapter 11 bankruptcy in New York on November 1, a move that was expected but which still constitutes one of the largest bankruptcies in U.S. history. The big lender had received $2.3 billion in December 2008 from the government under the Troubled Asset Relief Program (TARP) to keep it above water, but the weakness of its loan portfolio and its failure to secure financing in the public markets, or FDIC protection, led to the filing. However, the company said it expected to emerge from Chapter 11 by the end of the year, helped by promised line of credit from Carl Icahn, who is CIT’s largest bondholder.
As of June 30, CIT and its operating units had $71 billion of assets and $64.9 billion of debt. Under the filing, existing debt would be replaced with new debt, but it’s unlikely that the Treasury will get back its entire investment.
“We will be following developments very closely with an eye toward protecting taxpayers … but as the company’s disclosure on the prepackaged bankruptcy makes clear … recovery to preferred and common equity holders will be minimal,” Treasury spokesman Andrew Williams said.