5th largest us bankruptcy comming soon...

another round of carnage anyone... :P

http://www.marketwatch.com/story/cit-scrambling-for-11th-hour-rescue-report-2009-09-30

NEW YORK (MarketWatch) -- Embattled lender CIT Group Inc. is in the midst of a last-ditch bid to re-organize itself by handing control to bondholders, according to media reports Wednesday.

CIT shares slumped 40% on heavy volume as investors worried that the company's bondholders could end up owning most of the company's equity, or that a bankruptcy filing could wipe out the common stock.

CIT /quotes/comstock/13*!cit/quotes/nls/cit (CIT 1.07, +0.01, +0.94%) spokesman Curt Ritter declined to comment.

CIT, a leading lender to small and medium-sized businesses, has been hit hard by rising loan losses and a liquidity squeeze triggered by the financial crisis, which cut off the company's main source of funding.

In August, the company warned that it may have to file for bankruptcy. If that happens, it would be the fifth-largest U.S. bankruptcy fever, trailing only Lehman Brothers /quotes/comstock/11i!lehmq (LEHMQ 0.16, -0.02, -9.43%) , Washington Mutual /quotes/comstock/11i!wamuq (WAMUQ 0.21, -0.04, -16.33%) , WorldCom Inc., and General Motors /quotes/comstock/11i!mtlqq (MTLQQ 0.69, -0.02, -2.28%) .

Earlier this year, the government decided not to bail out the company, but CIT got a $3 billion loan from a group of major bondholders including Pimco, OakTree Capital and Baupost Group, helping it avoid bankruptcy for a while. See story on CIT's new loan.

The money helped the company repay a $1 billion loan that was due on Aug. 17. However, the new loan required CIT and its major bondholders to come up with a re-organization plan by Oct. 1.

The plan has to address CIT's many problems by shrinking the company and shifting its funding sources towards retail bank deposits, possibly through its CIT Bank subsidiary.

CIT said in an August regulatory filing that the plan would probably include debt-for-equity exchanges to cut the company's large debt load. It has also been trying to extend the maturity of some of its debt, giving it more time to repay.

The Wall Street Journal said Wednesday that CIT plans an exchange that would eliminate as much as 40% of the company's debt. Bondholders would get new debt secured by CIT assets, along with nearly all of the equity in the reorganized company.

The exchange pits investors holding short-term CIT debt against owners of the company's long-term debt. That's a problem because the company might not get enough bondholder support for the deal to go through. If that happens, the Journal said CIT plans to push the restructuring through in bankruptcy court.

Indeed, in CIT's August regulatory filing, the company said that it planned to pursue the restructuring outside of bankruptcy court, but warned that it could file for bankruptcy protection if the restructuring plan is unsuccessful, or if the steering committee of leading bondholders doesn't sign up to the plan.

CIT shares fell 40% to $1.31 during afternoon trading on Wednesday