– CIT Approaches Bankruptcy After Striking Icahn, Goldman Accord (Bloomberg):
Oct. 31 (Bloomberg) — CIT Group Inc., the 101-year-old commercial lender seeking to avoid collapse, may file for a prepackaged bankruptcy as soon as this weekend after striking deals with billionaire Carl Icahn and Goldman Sachs Group Inc.
A prepackaged bankruptcy “is probably going to go through,” Icahn said yesterday. He will supply a $1 billion loan for “supplemental liquidity” that can be used as bankruptcy financing, the New York-based company said. CIT also said it reached an agreement with Goldman Sachs to keep a credit line open should the lender file for court protection.
CIT’s agreement with New York-based Goldman Sachs will reduce a $3 billion credit facility to $2.13 billion and keep the line open should CIT file for bankruptcy.
Goldman Sachs Agreement
In exchange, Goldman Sachs received $285 million in termination fees, CIT said yesterday in a filing with the U.S. Securities and Exchange Commission. Under the terms of the two companies’ original agreement, Goldman Sachs would have been due a $1 billion termination payment to close the credit line after a CIT bankruptcy.
Before Goldman Sachs would have received a $1bn ‘windfall’ if CIT fails:
– Goldman Sachs to be paid $1bn if CIT fails, while US taxpayers would lose $2.3bn (Financial Times)
Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said.
The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said.
Goldman said: “This would not be a windfall payment. The make-whole payment is simply the present value of the spread to be earned over the life of the facility.”
The US taxpayer loses $2.3 billion, Goldman Sachs gains
$1 billion $285 million.
I told you before that the real crisis has only just begun. This is the ‘Greatest Depression.’
CIT’s Swoon Hits Taxpayers
CIT would be the fifth-largest bankruptcy filing in U.S. history
The $2.3 billion in taxpayer money spent to save CIT Group Inc. is likely to be wiped out, as the lender prepares to file for bankruptcy protection in a high-stakes restructuring plan aimed at keeping the firm in business.
People familiar with the plan said CIT, a major lender to small businesses, intends to file for bankruptcy-court protection in New York within days, perhaps as early as Sunday or Monday. Financial firms such as CIT have historically been sold off or wound down after a Chapter 11 filing, for fear that customers will draw down lending lines and cause a run on the bank. But CIT expects to have enough creditor support to complete a prepackaged reorganization by year-end, a relatively short period for a bankruptcy case of its size.
In a move smoothing its restructuring, the company said Friday that it had persuaded billionaire investor Carl Icahn to support its prepackaged bankruptcy plan. Mr. Icahn, who wanted to push CIT into liquidation, failed to persuade other bondholders to derail CIT’s restructuring plan.
With $71 billion in assets, CIT would have the fifth-largest bankruptcy filing in U.S. history, trailing only those of Lehman Brothers Holdings Inc., Washington Mutual Inc., Worldcom Inc. and General Motors Corp. CIT’s Utah bank, which has about $10 billion in assets, wouldn’t be part of the bankruptcy filing.
Read moreCIT Bankruptcy Filing Expected in Days; $2.3 Billion Taxpayer Money to Be Wiped Out; Goldman Sachs Receives $285 Million In Termination Fees