New York City CIT Group said late Thursday that its restructuring plan has been approved by its board and by the steering committee of its bondholders, according to a report by Associated Press.
The lender -- one of the nation’s largest to small and midsized businesses -- has launched a debt restructuring effort in hopes of cutting at least $5.7 billion from its balance sheet.
The company is also asking bondholders to approve a prepackaged reorganization plan in case it is forced to file for Chapter 11 bankruptcy protection.
CIT received $2.3 billion in federal bailout aid last fall, a $3 billion emergency loan in July from some of its largest bondholders, and bought back $1 billion in debt. But the company still needs to reduce its debt burden to survive.
Under the terms of the restructuring plan, bondholders would exchange their current notes for a portion of five series of newly issued secured notes, with maturities ranging from four to eight years, and/or newly issued preferred shares.
The exchange offers will expire just before midnight Oct. 29. However, for the out-of-court debt restructuring to be successful, CIT said at least $5.7 billion worth of debt must be able to be wiped off of its balance sheet.
Therefore, CIT also is asking most bondholders and other holders of CIT debt to approve a prepackaged reorganization plan so the company has the option of filing for and quickly exiting Chapter 11 bankruptcy protection in the event the debt swap doesn't achieve its goals.
"We believe this plan maximizes franchise value and can be executed quickly and effectively through a series of voluntary debt exchange offers or an expedited in-court restructuring process," said chairman and CEO Jeffrey M. Peek, in a statement. "Upon completion of either alternative, CIT will be a well-funded bank holding company with a strong capital position and market-leading franchises."
CIT has not commented on what the plan would mean in terms of recouping taxpayers' $2.3 billion investment.
Some experts have warned that a total collapse of CIT would deal a crippling blow to an economy still bleeding well over 100,000 jobs a month. The retail sector would be hit especially hard, since CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts have said 60% of the apparel industry depends on CIT for financing.