CIT Group, one of the largest small-business lenders in the United States, filed for bankruptcy Sunday with its board approving a "prepackaged" restructuring plan to shed 10 billion dollars in debt.
After being rescued from almost certain collapse in July following a US government rejection of a bailout plea, the company had struggled for months to stay afloat, receiving an emergency loan of 4.5 billion dollars as recently as October 28.
But when a comprehensive debt-exchange plan recently failed, the board of the company, which ran into financial problems after a home mortgage meltdown plunged the country into its worst crisis in decades, had begun reorganizing its capital structure ahead of a possible bankruptcy.
"With the overwhelming support of its debt-holders, the board of directors voted to proceed with the prepackaged plan of reorganization for CIT Group Inc and a subsidiary that will restructure the company's debt and streamline its capital structure," the company said in a statement after the board met Sunday.
"Under the plan, CIT expects to reduce total debt by approximately 10 billion dollars, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability."
In the Chapter 11 filing with the US Bankruptcy Court in Manhattan, the 101-year-old company reported total assets of 71 billion dollars and liabilities of nearly 65 billion, making the bankruptcy the fifth largest in US history, behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.
CIT Group chairman and chief executive Jeffrey Peek said the plan would allow its subsidiaries, including CIT Bank, to continue operations through the reorganization.
"This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence," Peek said in a statement.
About 85 percent of CIT's reported 30 billion dollars in bond debt participated in the voting, with 90 percent of them supporting the bankruptcy plan, the company said.
The restructuring by CIT, which provides financing to nearly one million small businesses and middle market companies, is a test case of sorts for an industry whose very business depends on the trust and confidence of customers and creditors.
In December, CIT Group received 2.3 billion dollars from the US Treasury as part of an emergency rescue package, but the taxpayer money is expected to be wiped out in the restructuring.
The decision in July not to further bail out CIT came after the US government injected tens of billions of dollars into the banking system and outlined a policy of helping large firms as the financial system came under pressure following the crisis.
A US administration official at the time said the decrease in the level of loans granted by CIT Group over the past year indicated that the firm was not too big to fail.
Operating in more than 50 countries, CIT is a bank holding company that provides financial products and advisory services to small and middle market businesses.