CIT launches debt-swap plan

CIT Group Inc launched on Thursday a debt-exchange plan that the struggling lender to small and mid-sized companies hopes will prevent it from filing for bankruptcy.

CIT, however, also asked bondholders to approve a prepackaged plan of reorganization that would allow it to initiate a voluntary filing under Chapter 11 if the debt exchange failed.

The lender, founded more than a century ago, said around a third of its bondholders agreed to participate in the exchange offer or vote for the prepackaged plan of reorganization.

Under the terms of the exchange offer, a tendering holder of an existing debt security would receive a pro-rata portion of each of five series of newly issued secured notes, with maturities ranging from four to eight years, and/or shares of newly issued voting preferred stock, CIT said.

The exchange offers are conditional upon achieving a debt reduction of at least $5.7 billion in aggregate, with specific targets for the periods from 2009 to 2012.

The exchange offer expires on October 29.

"We believe this plan ... can be executed quickly and effectively through a series of voluntary debt exchange offers or an expedited in-court restructuring process," Chief Executive Jeffrey Peek said in a statement.

CIT, which serves almost one million small and mid-sized companies, said the plan has been approved by its board of directors and by a committee of bondholders.

CIT's problems emerged in recent years following Peek's idea to tap into potentially profitable but risky businesses such as subprime mortgages and student loans.

The financial meltdown triggered a sharp rise in CIT's loan losses and credit costs, leaving the company on the verge of collapse. The lender to businesses from retailers to sport teams has lost close to $5 billion since the end of 2007.

For the 12 months ending August 31, 2010, CIT's unsecured debt funding needs are about $7.6 billion. The financial company has about $40 billion of long-term debt.