Cit Grp. Pfd A (fka CIT-A)

[Stock]

What To Know About CIT
Matthew Craft, 11.02.09, 4:00 PM ET

http://www.forbes.com/2009/11/02/cit-carl-icahn-treasury-goldman-markets-bonds-faq_print.html

After months of haggling with creditors to avoid bankruptcy, the commercial lender CIT Group filed for Chapter 11 protection on Sunday. Bondholders rejected the company's proposed debt swap but accepted CIT's plan for reorganization. If all goes as planned, the commercial lender could drop $10 billion in debt and exit bankruptcy owned by its current bondholders by the end of the year.

The bankruptcy filing ended a series of twists in CIT's efforts to survive, highlighted by the sudden appearance of billionaire investor Carl Icahn. In recent weeks, Icahn railed against CIT's board, tried to rally bondholders to scupper both the proposed debt exchange and plan for bankruptcy, and also offered to float the company a loan. CIT rejected Icahn's first loan offer and turned to another lending group, which includes other large bondholders, for a $4.5 billion loan.

But that wasn't the end of it. On Friday afternoon, CIT said it lined up a $1 billion line of credit from Icahn, which could be used as debtor-in-possession financing in bankruptcy. That came after the company made a batch of other moves, altering its reorganization plan and settling a loan arrangement with Goldman Sachs. So much has happened in recent weeks that observers are bound to be confused. Here, then, is an attempt to clear up some of the most common questions. We'll update the list throughout the week.

Q: What happened to that derivative contract CIT had with Goldman Sachs? Did CIT have to pay the bank $1 billion to go bankrupt?

CIT and Goldman reworked the agreement last week. They trimmed the $3 billion facility to $2.12 billion, shedding the unused portion, and CIT made a $285 million payment. Goldman pledged not to pull the line, now fully drawn, in bankruptcy. CIT tapped the $4.5 billion added to its credit facility to pay Goldman.

Q: So the $2.3 billion the Bush administration gave CIT under the Troubled Asset Relief Program just disappears?

Not exactly. CIT recently tweaked its restructuring plan so that the Treasury Department's preferred shares could fetch maybe $230 million once the company exits bankruptcy protection. But that's if taxpayers get really lucky, says Sean Egan, president of Egan-Jones Ratings, an independent credit-rating agency. Every creditor (and attorney) would have to get paid first before any of the preferred stockholders get a cent.

Preferred stockholders will get what are called "contingent value rights" in the planned reorganization. Their value depends on how the new notes and new common stock trade. If the new notes and new common stock trade at a level that exceeds the face value of the old notes over a 60-day period, then the Treasury gets value for the CVRs. That is, it has the right to new common stock.

Q: I read on the Internet that my common stock could rise in value once CIT is healthy again. Is that true?

No. Under the proposed plan, all existing common stock and preferred shares will be canceled when CIT exits bankruptcy, and existing bondholders will get nearly all of the new common stock. "I have never seen common-stock holders get anything from a bankruptcy in my 25 years," said Michael Gesas, a bankruptcy attorney at Arnstein & Lehr, in Chicago.