Score this one as a loss for the TARP Program: CIT Group, the ancient commercial lender bailed out late last year by the federal government and earlier this year by a group of hedge funds, has gone into bankruptcy protection.
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. But for Tim Geithner and the Treasury Department? Less so.
The hand that feeds--CIT got more than $2.3 billion in taxpayer money to stay afloat--is getting bitten in a big way. 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.
"We will be following developments very closely with an eye toward protecting taxpayers during the bankruptcy proceeding," Andrew Williams, a spokesman for the beleaguered Treasury said. But he conceded that all is basically lost, acknowledging that "recovery to preferred and common equity holders will be minimal."
Hedge funds 1, taxpayers 0.
Icahn To Finance CIT Bankruptcy [FINalternatives]
CIT Group Files Bankruptcy, Seeks to Cut $10 Billion in Debt [Bloomberg]
CIT's Bankruptcy May Help Bondholders and Erase Taxpayer Stake [Bloomberg]