According to an article in the Star-Telegram, CIT Group, Inc. is battling to avoid filing Chapter 11 bankruptcy–again, as it struggles to survive the credit crunch and economic crisis. The commercial lender is attempting to finalize a deal that would cut its debt by as much as 40 percent while giving its bondholders a large equity state in the company to avoid bankruptcy.
The article said:
“CIT Group spent the summer trying to stave off a potential collapse amid mounting loan losses and rising funding costs. It has been devastated by the downturn in the credit markets and is attempting to restructure its operations to remain in business. CIT in the past relied heavily on cheap, short-term debt to fund its operations – a type of funding that essentially evaporated during the peak of the credit crisis last year.”
CIT has already received $2.3 billion in federal bailout money and another $3 billion emergency loan from its largest bondholders which has not gone far in securing the firm’s financial future. If the bondholder deal goes through, the federal bailout loan will most likely be wiped out. But if they firm is unable to secure this deal, sources claim that the company will be forced to file Chapter 11 bankruptcy, making it the fifth largest bank in U.S. history to file bankruptcy.