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Century-old CIT Group Inc filed for bankruptcy in the Southern District Court of New York on Sunday.
According to the terms of the bankruptcy, bondholders will hold new CIT Group Inc. (NYSE: CIT) debt worth about 70% of the face value of the old debt. Preferred creditors, including the U.S. government, will get money only after other creditors are paid back. Common shareholders will receive nothing.
In December 2008, the U.S. government invested $2.33 billion dollars in CIT under the Troubled Asset Relief Program (TARP).
Unfortunately, when a company cannot pay its debt, the consequences can be severe. In fact, when it comes to bank debt, liquidation may be the only alternative.
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