Archive for November, 2009
CIT Group Files for Chapter 11 Bankruptcy
Posted by Jody Eisenman | Filed under Uncategorized
In a move that had been rumored for some time, CIT filed for bankruptcy protection today. The stock, which closed at 72 cents on Friday, had been as high as 30 dollars back in 2008. With this bankruptcy, CIT common and preferred shareholders will almost certainly lose everything. These investors include The US government, which previously gave CIT $2.3 billion last year in order to stave off bankruptcy then. CIT fiances vendors that supply merchandise to over 300,000 stores. What the effect this will have on the upcoming holiday season remains to be seen.
CIT’s filing is the fifth largest in US history, after Lehman, GM, WorldCom and Washington Mutual. This means that four of the five largest bankruptcies have occurred within the last two years. Unfortunately, this filing not only illustrates the double edged sword of debt, but also shows that we are certainly not completely out of the woods yet.
The way bankruptcy works is as follows: Unlike the Middle Ages, where there were debtor’s prisons, today individuals and corporations are allowed to attempt to work out a deal with their creditors. Although a discussion of all facets of bankruptcy is beyond the scope of this blog, a Chapter 11 filing means that the company can stay in business while reducing its’ expenses in an attempt to return to profitability. His filing must have the consent of the majority of the bondholders. Although the latter will generally take some sort of haircut on their position (meaning that they will get something less than 100 cents on the dollar), they agree because they feel they will do better than in a forced bankruptcy which could leave the situation in the court system for several years.
CIT will attempt to emerge from bankruptcy by the end of this year.
