CIT Group Inc is nearing a plan that likely would hand the commercial lender over to its bondholders, sources familiar with the matter said on Tuesday.
CIT was preparing an exchange offer that would eliminate up to 40 percent of its more than $30 billion in outstanding debt, said the sources, who did not wish to be identified because they were not authorized to make public comments about the deal.
The plan would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured company, one source said.
If not enough bondholders agreed to the plan, the company could seek to restructure in bankruptcy court, the source said. This would result in one of the largest Chapter 11 bankruptcy-court filings in U.S. history.
A second source said that while some bondholders supported the plan, a majority was not yet on board.
CIT's board has yet to approve any course of action, the first source said.
CIT spokesman Curt Ritter declined to comment.
Although CIT received $2.3 billion in December under the Troubled Asset Relief Program (TARP), federal regulators this year declined further requests by CIT for funds.
U.S. taxpayers are likely to see much of their investment wiped out under a bankruptcy, but not under a successful exchange offer, the first source said, adding that U.S. regulators had been frequently briefed on the developments of the plan.
The lender to small and medium-sized businesses, as well as to commercial real estate borrowers, has until October 1 to present a restructuring plan to lenders.
(Reporting by Paritosh Bansal and Walden Siew; Writing by Ilaina Jonas and Juan Lagorio; Editing by Muralikumar Anantharaman)