CIT Launches Two Parallel Restructuring Processes, One Of Which Is Solicitation For Prepackaged Bankruptcy
In a press release just issued, CIT has announced it is launching two parallel restructuring processes, spearheaded by company advisors Evercore (headed by former disgraced Deputy Secretary of the Treasury, Roger Altman), Morgan Stanley and FTI consulting. One of these will be a variety of exchange offers geared to provide a $5.7 billion (at least) reduction in the firm's debt load; in return tendering bondholders would receive a pro rata share of new 4 to 8 year secured notes, and/or shares of newly issued voting stock. We presume this means that any old/existing preferred/common stock become wiped out. In the second process CIT is soliciting bondholders to approve a pre-packaged plan of reorganization, so "the company can proceeds with a voluntary bankruptcy filing." Thus, the company has confirmed that, contrary to Jim Cramer's recommendations, its existing stock is now completely worthless. Dear Jim - you are now dishonorably inducted in the Dick Bove club of "advisors" who vociferously pitch companies merely days ahead of their bankruptcy filing. Welcome and enjoy your stay.
From the press release:
“Over the last several months, CIT’s management, together with its Board of Directors and outside advisors, has developed a comprehensive plan to position CIT for future success,” said Jeffrey M. Peek, Chairman and CEO. “We believe this plan maximizes franchise value and can be executed quickly and effectively through a series of voluntary debt exchange offers or an expedited in-court restructuring process. Upon completion of either alternative, CIT will be a well-funded bank holding company with a strong capital position and market leading franchises.
“We have the liquidity to serve our small business and middle market clients throughout this process,” Mr. Peek continued. “On behalf of CIT, I want to thank our clients for their continued support during this process and also thank our employees whose commitment is crucial to the future of CIT.”
Jeff Werbalowsky of Houlihan Lokey, the financial advisor to the Steering Committee, commented, “The Committee has worked very constructively with the Company and has approved its plan. Through the restructuring and substantial deleveraging featured in this plan, whether completed in or out of court, we are very confident that CIT will emerge as a strong bank holding company with renewed earnings and profitability potential.”
Comprehensive Series of Exchange Offers
CIT has initiated a series of voluntary exchange offers designed to recapitalize its balance sheet and significantly reduce its debt in an out-of-court restructuring. Successful completion of the exchange offers will generate significant capital and provide multi-year liquidity through the material reduction of CIT's outstanding debt.
Under the terms of the exchange offers, a tendering holder of an existing debt security would receive a pro rata portion of each of five series of newly issued secured notes, with maturities ranging from four to eight years, and/or shares of newly issued voting preferred stock. Consideration offered varies in amount and type based on issuer, maturity and position in the capital structure.
The exchange offers are conditioned upon achieving acceptable liquidity and leverage. These conditions require that the exchange offers cannot be consummated if the face amount of the Company's total debt is not reduced by at least $5.7 billion in aggregate, with specific debt reduction targets for the periods from 2009 to 2012, as more fully described in the offering memorandum.
The exchange offers are set to expire at 11:59 pm, New York City time, on Thursday, October 29, 2009. Tendered securities may be validly withdrawn at any time prior to the expiration date.
Solicitation for Potential Voluntary Prepackaged Chapter 11 Reorganization
CIT is also soliciting most bondholders and other holders of CIT debt to approve a prepackaged plan of reorganization so that the Company has the option to proceed with a voluntary bankruptcy filing. The Company believes that such a bankruptcy process could be resolved expeditiously with minimal disruption to its business. In this process, CIT Bank and CIT’s operating entities would not file for bankruptcy, which will allow the Company to continue to service its customers.