Bailed out this summer by $3 billion in hedge fund money, embattled lender CIT Group (NYSE:CIT) enters bankruptcy with $1 billion more.
The New York-based firm filed for Chapter 11 bankruptcy protection yesterday, a move financed by famed corporate raider and activist hedge fund manager Carl Icahn. The “prepackaged” bankruptcy filing was also strongly supported by the firm’s creditors committee, which is led by hedge funds Baupost Group, Centerbridge Partners, Oaktree Capital Management and Silver Point Capital.
The Treasury Dept. and CIT’s investors are undoubtedly much less happy with the plan. The bankruptcy filing likely means the government won’t see much, if any, of the $2.33 billion in Troubled Asset Relief Program (TARP) money it gave CIT in December, and current common shareholders of the firm will own just 2.5% of the reorganized CIT, under the plan filed yesterday.
The hedge fund-led creditors committee gave CIT a $3 billion lifeline in July after the Treasury rejected the lender’s request for additional bailout money. The lender’s bankruptcy is the fifth-largest by assets in U.S. history.
“We will be following developments very closely with an eye toward protecting taxpayers during the bankruptcy proceeding,” Andrew Williams, a spokesman for the Treasury Dept., said. “But as the company’s disclosure on the prepackaged bankruptcy makes clear, with debt holders receiving less than face value of their instruments, recovery to preferred and common equity holders will be minimal.”