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 As the 11th hour approaches on its comprehensive debt exchange, CIT Group Inc.'s (NYSE:CIT) outgoing chairman and CEO Jeff Peek in a Friday Webcast warned bondholders that if they don't either participate in the exchange or vote for a prepackaged bankruptcy the company could go into a messy "free-fall bankruptcy." Under that scenario, "a forced and haphazard" liquidation in bankruptcy court would likely occur, and the estimated recovery value for unsecured bondholders would be between 6 cents and 37 cents on the dollar, Peek said.CIT has said that in a prepack the unsecured bondholders would get 70 cents on the dollar. While under the debt restructuring plan, unsecured bondholders would get new debt between 70% and 90% of par, depending upon the maturity dates of the bonds that they hold. Bondholders would also get equity in the exchange. Other risks of a free-fall bankruptcy: a lengthy high-cost in-court process, possible negative regulatory reaction and a higher degree of uncertainty regarding assets or business units, Peek said. Some sources expect CIT to get the needed approval of 50% of debtholders and holders of two-thirds of the total debt. Why is Peek pushing so hard for a prepack or exchange anyway? Doesn't he have bigger fish to fry like mapping out his vacation plans to celebrate his coming New Year's Eve departure from this sinking ship? - Michael Rudnick
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If I was a bond holder I would take my 37 cents on the dollar instead of hoping I get more a year from now when the bank does collapse and their equity is zero.