CIT Files For Bankruptcy

Yet another banking failure and this time it's huge!

On MSNBC: Commercial lending giant CIT files bankruptcy

• Government to likely lose $2.3 billion it spent to prop company up last year
  
  updated 6:28 p.m. ET Nov. 1, 2009
  
  NEW YORK - Lender CIT Group has filed for bankruptcy protection, in an effort to restructure its debt while trying to keep loans flowing to the thousands of mid-sized and small businesses.
  
  CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders have overwhelmingly approved a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
  
  "The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.
  
  CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government will lose the $2.3 billion it sunk into CIT last year to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
  
  The bankruptcy protection filing is one of the biggest in U.S. corporate history. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. Its collapse is the latest in a string of huge cases driven by the financial crisis over the past two years, as bailed out industry heavyweights like General Motors and Chrysler both entered bankruptcy court.
  
  CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
  
  It received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
  
  It is unclear what the filing will mean for the nation's small businesses, many of which look to CIT for loans to cover expenses like buying materials at a time when other credit is hard to come by.
  
  Analysts have warned that already ailing sectors, like retailers, could be hit especially hard, since CIT serves as the short-term financier for about 2,000 vendors that supply merchandise to more than 300,000 stores.

Fifth biggest corporate bankruptcy filling in US corporate history.

CIT is a New York-based bank and it is one of the US largest lenders to small and mid-sized businesses.

$71 Billion in finance and leasing asset!

This bankruptcy filling will be massive.

Blogged previously: Last Chance For CIT?

• Q: Who does CIT serve?
  
  A: CIT says it serves more than 1 million business customers, most of them small or mid-size businesses.
  
  The company's clients run the gamut, but tend to be in industries considered riskier in the small business landscape, such as restaurants and retail. Dunkin' Donuts franchisees and Dillard's Inc. are among the company's clients.
  
  It's not clear what percentage of the country's small business lending market CIT Group holds, but the company is the ninth-largest commercial and industrial lender in the United States, according to Foresight Analytics.
  
  As of March 31, CIT Group held 1.7 percent of the $1.4 trillion in commercial and industrial loans on bank balance sheets.
  
  Q: What role do small businesses play in the broader economy?
  
  A: Small businesses provide about half of all private-sector jobs. According to the U.S. Small Business Administration, small firms generated 60 percent to 80 percent of net new jobs every year over the past decade.
  
  Small businesses — defined as having fewer than 500 workers — made up 99.9 percent of the 27.2 million businesses in the country in 2007, according to the SBA. Just 17,000 were large businesses.
  
  The odds aren't great for small firms, however. The SBA says that while two-thirds of new businesses survive at least two years, only 31 percent survive at least seven years.

As such, much focus will be on the small business. Will this bankruptcy filling impact small business lending? And if so, how huge an impact?

See also That CIT Bailout Delima Is No Small Issue

Other news report: CIT Files Bankruptcy; US Unlikely to Recoup Money and CIT files for 5th largest US bankruptcy