Lender seeks bankruptcy protection

Lender CIT Group has filed for bankruptcy protection (AP)

Struggling US lender CIT Group has filed for bankruptcy protection in an attempt to restructure its debt while trying to keep badly-needed loans flowing to thousands of mid-sized and small businesses.

The company filed in New York bankruptcy court after a debt-exchange offer to bondholders failed.

CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganisation plan which will reduce total debt by 10 billion dollars (£6 billion) while allowing the company to continue to do business.

The bankruptcy protection filing is one of the biggest in US corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors.

CIT's bankruptcy filing shows £43 billion in finance and leasing assets against total debt of £39.3 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year.

In addition to reducing its debt, CIT said the plan cut cash needs over the next three years, which should help it return to profitability more quickly.

"The decision to proceed with our plan of reorganisation will allow CIT to continue to provide funding to our small business and middle-market customers, two sectors that remain vitally important to the US economy," said Jeffrey Peek, chairman and chief executive.

Mr Peek has said he plans to step down at the end of the year.

CIT's move will wipe out current holders of its common and preferred stock. That means the US government will probably lose the £1.4 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company.