CIT shares jump in first trading after bankruptcy

AP News
Posted: Dec 10, 2009 4:38 PM

CIT Group Inc. shares jumped Thursday in the lender's first day of trading after emerging from bankruptcy protection.

Shares rose $3.49, or 13.7 percent, to close at $28.99. The shares opened at $25.50.

One of the nation's largest lenders to small and mid-sized businesses, CIT swiftly navigated through bankruptcy in just six weeks because its key bondholders had already approved a plan to reorganize the company.

There is little precedent for large financial firms successfully reorganizing in bankruptcy and re-emerging as a strong new company. That's because, unlike for example a manufacturer with a product to sell, financial companies are only as good as their word to repay debt and provide customers with loans. A bankruptcy filing puts those abilities in serious doubt.

The early jump in CIT's stock price, however, showed that investors in the restructured company are confident in its future.

The New York-based lender was forced into bankruptcy on Nov. 1 after failing to raise cash to pay off outstanding debt. CIT was also hammered by mounting loan losses as more customers fell behind on repaying loans amid the recession.

CIT was able to cut its total debt by $10.5 billion by reorganizing in bankruptcy court. It also deferred debt maturities for three years.

Common stock holders and the government lost their investments when CIT filed for bankruptcy protection. The Treasury Department had given CIT $2.3 billion in loans as part of its $700 billion financial rescue plan last fall at the peak of the credit crisis.

The government declined to give CIT more money this past summer as the lender tried to improve its financial position and avoid bankruptcy.

Even though CIT has completed the bankruptcy process, its restructuring isn't fully complete. It still is rebuilding its board and is looking for a new CEO. Jeffrey Peek, who currently runs the company, said in mid-October that he planned to retire by the end of the year.

A new board is being established that will include the new CEO, five members from the old board and seven independent directors nominated by CIT's debtholders.

CIT had continued to operate throughout the bankruptcy process.