In what could only be considered a bizarre decision by the judge, he approved a proposed temporary restraining order from CIT Group which will keep lenders from collecting on losses coming from the CIT Group/Equipment Finance Inc. unit, which isn’t even in bankruptcy.
According to court documents, this would have led to losses of $680 million to the company. But a bankruptcy court really shouldn’t have allowed this in the opinion of lenders like Wells Fargo Bank (NYSE:WFC), which, along with others, stated CIT Group hadn’t proved in any way they should be awarded this type of extraordinary measure for a division which has not entered into bankruptcy in the first place.
This may have been allowed to keep more bailout funds being funneled into the bankrupt financial entity, stirring up more outrage from taxpayers, who are growing increasingly edgy over the money being spent on huge companies by politicians on their behalf.
An agreement between CIT Group and JPMorgan Chase (NYSE: JPM) was also approved by the judge who couldn’t say no, whereby letter of credit of $750 million would be allowed to be continually accessed by CIT, where the company alleged the funds were needed to continue to effectively operate and keep up good relationships with their customers.
Other unusual requests granted by Gropper was in allowing CIT to fund its operations with inter-company cash transfers. The company received a loan of $4.5 billion near the end of October, adding it to the $3 billion loan it received in July, 2009. Proceeds of the loans were given to subsidiaries of the company, which CIT also used the subsidiaries as collateral for the loans. The subsidiaries received liens on CIT’s assets in return.
Investor Carl Icahn, who holds over five percent of CIT’s debt, borrowed $1 billion to CIT in order to continue operations during the bankruptcy procedures. Gropper allowed CIT work out an exception for Icahn concerning using debt to increase billions in tax breaks.
Icahn is working on a deal with CIT where he could own close to 11 percent of the stock of CIT once it emerged from bankruptcy.
CIT said sub-prime mortgage losses and continuing tough credit markets as the reasons for declaring bankruptcy on November 1.
After terrible negotiations by Treasury Secretary William Geithner, taxpayers are expected to receive none of the $2.3 billion in bailout money CIT Group was given.
Wednesday, November 04, 2009
From American Banking News: