CIT Group bankruptcy triggers termination event under swap agreements

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Related Companies CIT Group Fndg Co of Delaware CIT Group Inc. (CITGQ)

Related Documents 8-K CIT Group Inc. 11/1/2009, filed on 11/4/2009

Related Articles 11/2/2009 NYSE reports suspension of CIT stock as shares trade at high volume 11/1/2009 CIT files for bankruptcy protection, expects 'swift emergence'

CIT Group Inc. on Nov. 4 said its recent Chapter 11 filing constituted a termination event under a number of swap agreements, which could result in net payments of about $236 million for CIT and CIT Group Funding Co. of Delaware LLC.

In a Form 8-K regarding the filing, the lender said the figure assumes all the swap agreements are actually terminated, and the amount is subject to change. The bankruptcy filing constituted an event of default under certain aircraft and rail leases under which one of CIT's wholly owned subsidiaries is the head lessee.

CIT said that in the event the head lessor under each lease demands stipulated loss payments, CIT or the head lessee would be obligated to make payments of about $1.7 billion. However, as a result of those payments, the lender expects that it would receive title to air and rail assets from the head lessors worth about $1.3 billion.

The company also guarantees about A$300 million of public debt issued by CIT Group (Australia) Ltd. However, the two reached an agreement with a majority of CIT Australia's noteholders to amend the terms of the debt to include a waiver of an event of default and a grant of a first-lien security interest in most of CIT Australia's assets to the noteholders. The amended terms also include a subordination of the intercompany notes that CIT Australia owes to CIT to the CIT Australia public debt, and institution of a cash control process whereby certain cash is used to repurchase and retire notes prior to the maturity date. The interest rate on the debt remains unchanged, and CIT Australia will not pay the noteholders any amendment fee.

As a result of the delisting of CIT's common stock, each share of CIT's 8.75% series C noncumulative perpetual convertible preferred stock is immediately convertible into 9.0909 shares of the company's common stock. Due to the automatic stay in connection with the Chapter 11 cases, CIT is prohibited from paying cash in lieu of any fractional shares.