Cit Grp. Prfd Z (fka CIT-Z)

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CIT, Filing Statistics, Crusader, Charter: Bankruptcy (Update1)

By Bill Rochelle

Nov. 3 (Bloomberg) -- The prepackaged Chapter 11 filing by CIT Group Inc. left non-bankrupt subsidiaries at risk of being called in default on their own obligations. To prevent an erosion in value and allow subsidiaries to remain outside bankruptcy, CIT is calling on the bankruptcy judge to stop some creditor actions against a leasing subsidiary as though the subsidiary too was in bankruptcy reorganization.

CIT’s efforts won’t go unopposed.

In papers filed soon after the Chapter 11 petition on Nov. 1, CIT sought a temporary restraining order against parties to some railcar leasing transactions of non-bankrupt subsidiary CIT Group/Equipment Financing Inc.

CIT says there are 41 transactions where other parties to the complicated leases could declare a default against the subsidiary. CIT says the actions “would likely destroy the going-concern value of the railcars,” bringing on “the needless loss of up to approximately $680 million of value” in the railcar business.

The parent’s bankruptcy filing was an event of default, theoretically allowing other parties to the leases to take control of the railcars and demand direct payment from the operators of the equipment. Some of the parties also could demand payment of so-called stipulated loss value under the leases, including the value of the equipment and other damages, such as adverse tax consequences.

Some defendants in the suit filed papers yesterday objecting to the scope of the injunction CIT seeks. John Hancock Life Insurance Co., Northwestern Mutual Life Insurance Co., and Teachers Insurance & Annuity Association of American called on the bankruptcy judge to insure CIT will pay stipulated loss value for the equipment in December despite an injunction. They also want aircraft to be excluded specifically from the proposed injunction.

Other defendants in the suit include affiliates of Siemens AG, Fifth Third Bancorp, and Wells Fargo & Co. The lawsuit will test whether the bankruptcy judge can or will grant the subsidiary the same relief it would enjoy were it too in Chapter 11.

New York-based CIT, the sixth-largest commercial and industrial lender in the U.S., is also the third-largest in the leasing of railcars and aircraft. It listed assets of $71 billion and debt totaling $64.9 billion in the petition.

The reorganization plan, already accepted by all affected creditor classes, is to reduce debt by $10 billion. The plan provides full payment for some structurally senior noteholders while senior unsecured creditors are projected to have a 94.4 percent recovery from new notes, equaling 70 percent of their existing holding, plus common equity.

Subordinated debt holders are predicted to have a 50 percent recovery by receiving new common equity and contingent value rights.

Junior subordinated creditors are expected to see an 8.1 percent dividend through new equity and contingent value rights. Existing common shareholders receive nothing, while holders of existing preferred equity are to be given contingent value rights.

The case is In re CIT Group Inc., 09-16565, U.S. Bankruptcy Court, Southern District New York (Manhattan).

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7Gm8cp8MzP8#