CIT’s move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government and taxpayers will lose the $2.3 billion sunk into CIT last year to prop up the ailing company. Goldman Sachs however, will gain $1 billion because of CIT’s bankruptcy, according to a report published Oct. 4 by theFinancial Times.
The $2.3 billion lost in taxpayer funds is the largest amount lost since the government began infusing banks with capital, according to the Financial Times.
CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders have overwhelmingly approved a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
The Chapter 11 filing is one of the biggest in U.S. corporate history. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. Its collapse is the latest in a string of huge cases driven by the financial crisis over the past two years, as bailed out industry heavyweights like General Motors and Chrysler both entered bankruptcy court.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
It received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.