Prepackaged Bankruptcy Seen for CIT

Updates to include CIT's comments about deal with Icahn.

NEW YORK (TheStreet) -- CIT Group (CIT Quote) is likely to file for bankruptcy protection, possibly as soon as Sunday night, according to a published report.

Shares of CIT were down in afternoon action, losing 17 cents, or nearly 18%, to 78 cents on volume of more than 100 million.

CIT is expected to get approval for its prepackaged bankruptcy plan from 50% of the bondholders representing two-thirds of CIT's outstanding debt, according to a report from CNBC's David Faber Friday. Faber said a filing is likely on Sunday, citing people involved in the talks.

CIT issued a press release Friday afternoon stating it has the support of financier Carl Icahn, who has said he is CIT's largest bondholder. Icahn has also agreed to provide CIT with $1 billion in financing, which can be used whether or not CIT files for bankruptcy, the release stated.

Also Friday, CRT Capital analyst Kevin Starke told Bloomberg News that CIT's bonds are trading as if the prepackaged plan is likely to be approved. The plan would give senior bondholders 70 cents on the dollar plus equity in the restructured company, while junior noteholders would get equity, and common shareholders would get nothing.

Preferred shareholders, including the U.S. Treasury, which invested $2.33 billion in CIT, would most likely be wiped out, according to a source familiar with the situation. The source, who worked on the restructuring plan, told TheStreet that preferred shareholders, though, would get a security called a contingent value right. This security would have some value, if, 60 days after the bankruptcy filing, more money than expected is available for other stakeholders.

Early Friday, CIT reached terms to amend a $3 billion loan agreement with Goldman Sachs (GS Quote), reducing its size to $2.125 billion and paying Goldman a $285 million termination fee, according to a regulatory filing.

CIT has been scrambling to cut its debt following a funding crisis that began in earnest after it was denied access to a government program that guaranteed the debt of larger lenders, including General Electric (GE Quote) and large banks like Citigroup (C Quote), Bank of America (BAC Quote) and Wells Fargo (WFC Quote). Bondholders had until midnight on Thursday to agree on the proposed debt exchange or the bankruptcy plan. CIT says it is still counting the votes.

-- Written by Dan Freed in New York.