CIT Group Inc., one of the nation's biggest lenders to small and mid-sized businesses, said Tuesday that a judge approved its reorganization plan and it plans to emerge from bankruptcy protection on Thursday.
CIT Group filed for bankruptcy protection on Nov. 1 after it failed to restructure outstanding debt to alleviate a cash crunch. The reorganization plan, which was approved by key bondholders in advance, reduces CIT's total debt by $10.5 billion. It also defers debt maturities for three years.
CIT, based in New York, had continued to operate while working through bankruptcy proceedings.
Reducing and delaying debt repayments gives CIT more time to repair its finances, which were hammered by the collapsing credit markets late last year and rising loan defaults among its customers.
CIT must also restructure its board of directors and find a new CEO now that it has completed bankruptcy proceedings.
CEO Jeffrey Peek said in mid-October that he planned to retire by the end of the year. The company said in a statement Tuesday it continues its search for Peek's replacement.
The new CEO will also sit on a newly created board thatb will consist of 13 directors, including the new CEO, seven independent directors nominated by CIT's debtholders and five directors from the current board.
CIT spent the summer and early fall trying to line up financing to help support its growing debt repayments. The company was no longer turning a profit as its costs to borrow money had outpaced earnings from lending money to customers. It was also weighed down by mounting loan defaults among its customers, who have been hit hard by the recession.
CIT was turned down for a second loan from the government early in the summer as it looked to boost its capital position. The government gave CIT $2.3 billion last fall as part of its $700 billion bank rescue program. That $2.3 billion investment was lost when CIT filed for bankruptcy.
The company's bondholders eventually rejected a plan in late October to swap outstanding debt for later-maturing bonds and common stock. That failure led to the bankruptcy filing.