I was just going over this news release on CIT's chapter 11 bankruptcy and it says the value of their assets- $71 billion - is higher than their liabilities - $64.9 billion - and also that both preferred and commons will be wiped out.
So it does appear that a company in Chapter 11 does not have a responsibility to pay preferred and common shareholders.
I suppose in Chapter 7 the payouts would apply.
Does anyone know who at WMI will be making this decision?
CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.
A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.
CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
