CIT filed for Chapter 11 protection on Sunday in an effort to cut $10 billion in debt. The move will set the U.S. Treasury – and American taxpayers – back by $2.3 billion.
After
receiving a $2.3 billion injection from the Troubled Asset Relief Program (TARP) in December 2008, CIT filed for Chapter 11 protection on Sunday, a filing that would make it the fifth-largest bankruptcy by assets.
The U.S. Treasury Department does not expect to receive any tangible repayment of the $2.3 billion TARP loan.
“We will be following developments very closely with an eye towards protecting taxpayers during the bankruptcy proceeding,” Treasury spokesman Andrew Williams
wrote in a statement. “But as the company’s disclosure on the prepackaged bankruptcy makes clear, with debt holders receiving less than face value of their instruments, recovery to preferred and common equity holders will be minimal.”
The CIT filing represents the largest loss yet for TARP and offers a showcase on the risks to U.S. taxpayers. While the U.S. Treasury will likely lose the $2.3 billion, Goldman Sachs – an investment banking firm that also offered CIT a rescue line – was able to
structure a loan to CIT that had numerous payback triggers and penalties, unlike the lost TARP CIT loan.
"The TARP has become nothing but $700 billion of walking around money,” Congressman Darrell Issa, ranking member of the House Committee on Oversight and Government Reform told FOX Business. “Many suggested that TARP was an investment that would yield dividends to the American people; clearly, that line of thinking is absurd as CIT represents $2.3 billion that taxpayers will never get back."
