The Wall Street Journal.
Message to Creditors: Agree to Debt Restructuring or Take Chances in Court.
CIT Group Inc. upped the ante with its creditors by drawing up a prepackaged bankruptcy plan, two people familiar with the matter said Wednesday.
The move pressures its bondholders to participate in the proposed debt restructuring, or take their chances in bankruptcy court.
The details of the prepackaged bankruptcy plan will be shared with investors along with the debt restructuring plan, said the people familiar with the matter. They also have the option to vote on the prepackaged bankruptcy.
The lender previously warned investors that a bankruptcy filing as a means of restructuring the company is one option for CIT. "A threat isn't a threat unless you're willing to follow through," said one of the people.
The lender to nearly a million small and midsize businesses is preparing an exchange offer to bondholders holding about $31 billion in debt, the people said. The exchange would aim to get bondholders to push out their maturities and exchange existing debt for new secured debt and equity in a restructured company. This restructuring would buy the company time as it struggles with an inability to tap its traditional markets for funding.
At the same time, CIT is soliciting approval from bondholders for a prepackaged bankruptcy, a move the company is prepared to make if the exchange offer fails, these people said. In bankruptcy, companies are on solid legal footing to get a plan approved if creditors holding at least two-thirds of outstanding debt agree.
One person described the approach as "two roads" toward deleveraging CIT's balance sheet. Another person said the company remained concerned about "holdouts" in the exchange offer. An exchange is "the best way to do" the restructuring, this person said, but if bondholders "don't want to do it that way, [CIT will] do it the other way."
Some investors welcomed the proposal, knowing their options are limited. "Swapping an unsecured piece of paper for a new bond with collateral and a side helping of common stock is good enough that a significant number of bondholders will tender," said Zachary Prensky, managing director of Little Bear Investments who owns CIT bonds.
As part of the plan, CIT also will seek other new financing to make sure the company "has plenty of liquidity" to operate and potentially refinance some secured debt, one of the people said. The new financing, which could total around $3 billion or $4 billion, would be put up by the same bondholders -- which include Centerbridge Partners; Allianz SE's Pacific Investment Management Co.; Oaktree Capital Management; and Silver Point Capital -- that provided CIT with $3 billion in rescue financing over the summer, another person familiar with the situation said. Bank of America Merrill Lynch would likely be the agent on the loan, this person said.
Another person familiar with the matter said CIT likely wouldn't roll out the debt-exchange offer and prepackaged bankruptcy solicitation until late Thursday night.
A bankruptcy filing presents considerable risk for CIT, as financial firms have struggled to stay afloat in Chapter 11 amid customer anxiety. CIT hopes to solicit enough approval for a bankruptcy plan that would get it in and out of court quickly, people familiar with the matter said.
CIT Group Inc. upped the ante with its creditors by drawing up a prepackaged bankruptcy plan, two people familiar with the matter said Wednesday.
The move pressures its bondholders to participate in the proposed debt restructuring, or take their chances in bankruptcy court.
The details of the prepackaged bankruptcy plan will be shared with investors along with the debt restructuring plan, said the people familiar with the matter. They also have the option to vote on the prepackaged bankruptcy.
The lender previously warned investors that a bankruptcy filing as a means of restructuring the company is one option for CIT. "A threat isn't a threat unless you're willing to follow through," said one of the people.
The lender to nearly a million small and midsize businesses is preparing an exchange offer to bondholders holding about $31 billion in debt, the people said. The exchange would aim to get bondholders to push out their maturities and exchange existing debt for new secured debt and equity in a restructured company. This restructuring would buy the company time as it struggles with an inability to tap its traditional markets for funding.
At the same time, CIT is soliciting approval from bondholders for a prepackaged bankruptcy, a move the company is prepared to make if the exchange offer fails, these people said. In bankruptcy, companies are on solid legal footing to get a plan approved if creditors holding at least two-thirds of outstanding debt agree.
One person described the approach as "two roads" toward deleveraging CIT's balance sheet. Another person said the company remained concerned about "holdouts" in the exchange offer. An exchange is "the best way to do" the restructuring, this person said, but if bondholders "don't want to do it that way, [CIT will] do it the other way."
Some investors welcomed the proposal, knowing their options are limited. "Swapping an unsecured piece of paper for a new bond with collateral and a side helping of common stock is good enough that a significant number of bondholders will tender," said Zachary Prensky, managing director of Little Bear Investments who owns CIT bonds.
As part of the plan, CIT also will seek other new financing to make sure the company "has plenty of liquidity" to operate and potentially refinance some secured debt, one of the people said. The new financing, which could total around $3 billion or $4 billion, would be put up by the same bondholders -- which include Centerbridge Partners; Allianz SE's Pacific Investment Management Co.; Oaktree Capital Management; and Silver Point Capital -- that provided CIT with $3 billion in rescue financing over the summer, another person familiar with the situation said. Bank of America Merrill Lynch would likely be the agent on the loan, this person said.
Another person familiar with the matter said CIT likely wouldn't roll out the debt-exchange offer and prepackaged bankruptcy solicitation until late Thursday night.
A bankruptcy filing presents considerable risk for CIT, as financial firms have struggled to stay afloat in Chapter 11 amid customer anxiety. CIT hopes to solicit enough approval for a bankruptcy plan that would get it in and out of court quickly, people familiar with the matter said.
