CIT Group Goes Bankrupt--Who Wins, Who Loses?

Tallying the scoreboard after the fifth biggest bankruptcy in U.S. history

Clocking in as the fifth largest bankruptcy in U.S. history, CIT Group filed for Chapter 11 bankruptcy protection on Sunday.  The 101-year-old commercial lender will try to restructure its debt while keeping loans flowing to thousands of small and midsize business clients. Financial reporters have been quick to point out the biggest winners and losers in wake of the filing. Few look worse off than the government, which stands to lose $2.3 billion it shelled out as a part of TARP, the federal bailout. What may surprise some are the winners, who include Goldman Sachs and CIT creditors:

Losers

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• Taxpayers and the TARP, writes Linus Wilson at Seeking Alpha: "The CIT Group investment was a bad deal for taxpayers on the day it was made. Today it looks like what little value remained in the taxpayers' preferred stock investment has been wiped out. There was little evidence that Treasury officials performed basic due diligence when investing in CIT Group in December 2008. If they had, they would have been shocked by the high yields on its publicly traded preferred stock. Preferred stock is a very risky security. CIT Group is the first large lesson for taxpayers of its risks... Today the taxpayers' investment is virtually worthless. With $71 billion of assets CIT Group never posed any systemic risk to the U.S. economy...It surely is and was small enough to fail. This begs the question, 'Why was it bailed out in December 31, 2008?' Taxpayers deserve answers."

• Investors, writes Douglas A. McIntyre at 24/7 Wall Street: "The group that will lose the most money the fastest are the investors who have bought CIT shares over the last several weeks, betting the company would not have to go to court. Shares traded at $2.20 on September 29. On October 19, CIT traded at $1.21. Investing in CIT was a long shot and investors who put their capital into the stock are likely to watch the shares fall to a few pennies tomorrow morning."

• Retailers writes Stephen Manning at The Huffington Post: "Analysts have warned that already ailing sectors, like retailers, could be hit especially hard, since CIT serves as the short-term financier for about 2,000 vendors that supply merchandise to more than 300,000 stores."
  

Winners

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• Goldman Sachs, writes Mark M. Meinero at CNN Money: "CIT Group will pay Goldman a termination fee of $285 million and will post $250 million in collateral. In return, Goldman agreed not to terminate the credit facility in the event of a CIT bankruptcy."

• The Bank's Creditors, writes Jon Shazar at Dealbreaker: "CIT filed for bankruptcy yesterday. That’s great news for its creditors—including those hedge funds and equally-ancient corporate raider Carl Icahn, whose $1 billion will keep the firm going during its stay at Club Chapter 11...The government will recoup little if anything under the prepackaged bankruptcy plan, which promises creditors new notes at 70 cents on the dollar and new common stock. Current common stockholders will get just 2.5% of a reorganized CIT."

• CIT Group, suggest a team of Wall Street Journal reporters: "CIT garnered support from about 90% of voting debt holders for a prepackaged reorganization plan that could allow the lender to speed through Chapter 11 and emerge with a new business model by year's end. The bankruptcy stay would eliminate some $10 billion in debt from the lender's balance sheet." The reporters interview a chief executive in business with CIT who says, "We're going to stay with them...CIT's bankruptcy-court stay will be a short but necessary fix."