CIT Group (CIT) Works On Bankruptcy Option

CIT Group (NYSE: CIT) upped the stakes with its creditors by drawing up a prepackaged bankruptcy plan, according to the WSJ. This move pressures CIT's bondholders to participate in a proposed debt restructuring or risk their chances in bankruptcy court.

The details of the prepackaged bankruptcy plan will be shared with investors along with the restructuring plan. They also have the option to vote on the prepackaged bankruptcy.

The lender previously warned investors that a bankruptcy filing as a means of restructuring the company is one option for CIT.

CIT is preparing an exchange offer to bondholders holding about $31 billion in debt. The exchange would hope to get bondholders to push out their maturities and exchange existing debt for new secured debt and equity in a restructured CIT. In case the exchange fails, CIT is also soliciting approval from bondholders for a prepackaged bankruptcy. In bankruptcy, companies are on solid legal footing to get a plan approved if creditors holding at least two-thirds of outstanding debt agree.

Some investors liked the proposal, realizing they have limited options. "Swapping an unsecured piece of paper for a new bond with collateral and a side helping of common stock is good enough that a significant number of bondholders will tender," Zachary Prensky, managing director of Little Bear Investments who owns CIT bonds told the WSJ.

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