It makes sense once you understand that the people pushing for this restructure are the same ones who loaned CIT $3 billion and took a security position/collateral on assets worth $10 billion. Thus even if CIT declares bankruptcy AND CIT repudiates that debt they still walk away with the collateral which is likely a very desirable basket of assets potentially worth more than $3 billion. These folks have a preferred debt position.flyingredgoat wrote:I don't understand. Bankruptcy is relief of debt by canceling it. Why would the people loaning money suggest canceling the debt?raptor wrote:Interesting CIT development. Looks like the bondholders who loaned CIT $3 billion will push a CIT restructure via a bankruptcy.
http://www.reuters.com/article/innovati ... EB20090723" onclick="window.open(this.href);return false;
The other thing to remember is that in a bankruptcy you are permitted to "work out" your debts. Businesses in bankruptcy (think GM) can leave behind very expensive debts but still keep other debts and contracts in place if it makes sense and the plan is approved by the bankruptcy judge. Bankruptcy done right is a powerful tool to reorganize a business. GM & Chrysler used it to shed dealers at no cost when this typically would have cost them $2 million per dealer.
I would guess that based upon the fact that CIT's business model is reported to be flawed and everyone agrees a restructure is necessary that the bondholders would rather see a restructure whereby their "ASSets" are protected and the debtors take a haircut and thus ensure that CIT will be around a while.