Icahn Finances CIT Bankruptcy

Bailed out this summer by $3 billion in hedge fund money, embattled lender CIT Group (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.”

Comments

[Donald Ingram:]

PrePacks have a poor history of success. They tend to be recurring nightmares. As of the end November 2008, according to an S&P Report - CIT Group Inc. is the most widely referenced obligor in European Synthetic CDOs at 1,053 or 66% of the total. What has happened to this huge pile of toxic waste?
The small and medium sized regional banks will be hit with a double whammy because of their exposure to CLO/CDO/CDS to hedge themselves against a ton of the CIT issues, CITI issues, etc. which they claimed as Tier 1 capital on their balance sheets.
This story is just starting to get warmed up. For some the heat will grow intense! Those regionals in the Southeast and West will be the hardest hit because of their over exposure to commercial real estate loans, which are a big part of this huge pile of toxic, financial waste.

Nov 02 12:49 PM

[Tony Petroski:]

From the article:

"...a move financed by famed corporate raider and activist hedge fund manager Carl Icahn."

"In the live of every vulture, there comes a time when he looks up to watch the eagles."

Yogi Berra.

Nov 02 07:57 PM

[Moon Kil Woong:]

This is but another Geithner failure that they tried to paper up for as long as possible. Really, is Obama serious about keeping this smuck? He negotiated a raw deal for the US. When he talks about regulating, he should talk about hiring a regulator to regulate himself.

Well on a positive note for Geithner I guess we can say at least he ripped the public off less than Paulson.

As for Icann, he may be a vulture but many CIT customers have nowhere to go for loans besides them. Many of their loans are to SME businesses not giant corporations or loads of toxic mortgages dumped on Fannie Mae, Freddie Mac, and Ginnie Mae.

The real loser is the taxpayer and struggling middle class businesses.

Nov 03 12:22 AM