M&A

1 November, 2009

CORRECTED-UPDATE 5-CIT moves closer to pre-packaged bankruptcy

CIT warned last week that if investors did not support its restructuring efforts, it could end up filing for bankruptcy without a plan for how to fix itself. Exiting bankruptcy could take a long time and destroy much of the company, CIT's management said in a presentation.

"We're all glad this is behind us and that we can now consummate this transaction and hopefully make bondholders some more money," said Jeff Werbalowsky, chief executive of Houlihan Lokey, the adviser to CIT bondholders.

"The company did the right thing in putting this behind us, and that's where this needs to be for a quick and successful restructuring."

CIT had sought to get support from bondholders to exchange their old debt for new securities, or to agree to a pre-packaged bankruptcy. The votes were due by the end of Thursday, Oct. 29.

The debt exchange was widely seen as doomed to fail, given the number of competing interests involved.

CIT was once the largest lender to small and medium sized business in the United States. It said in a presentation earlier this month that it hopes to move key operations, such as vendor financing and small business lending, into its bank unit. That bank unit can then fund lending through deposit borrowing.

CIT fell victim to the credit crunch, which lifted its borrowing costs, and the recession, which left it with increasing numbers of bad loans.

ICAHN SUPPORT

Icahn, who says he is CIT's largest bondholder, said in a statement that he changed his mind on the pre-packaged bankruptcy plan because he was pleased by changes the company made, including establishing an accelerated process for appointing new directors.

"These changes significantly improve corporate governance and cash flow protections, and are positive for the company and all noteholders," he said in the statement.

Shares in cash-strapped CIT slumped 22.5 percent to 73 cents, as investors took the announcement as an indication that the pre-packaged bankruptcy plan would go ahead.

CIT's arrangement with Icahn also includes provision for an additional $1 billion in financing from Icahn Capital.

The lender said the additional credit could be drawn as debtor-in-possession financing in the event of a bankruptcy.

The upfront cost for this financing could be 40 percent lower than credit the company secured earlier in the week, Icahn said in his statement.

The century-old lender on Wednesday arranged for $4.5 billion in financing from a group of creditors as an addition to a $3 billion loan arranged in July. (Reporting by Elinor Comlay, Walden Siew, and Dan Wilchins; Additional reporting by Joseph Giannone and Walden Siew; Editing by Gerald E. McCormick, Gary Hill and Dean Yates)

Source: http://www.reuters.com