This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

10 Once-Bankrupt Companies Primed for a Comeback (Update 1)

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

4. CIT Group (CIT)

After weathering the worst of the credit crisis, CIT Group (CIT) a commercial lender to small and midsized businesses with a 101 year history filed for bankruptcy after negotiations on a debt-for-equity exchange with its creditors failed. For stock investors, which included the U.S. Treasury after a $2.3 billion bailout investment, the bankruptcy meant a wipe out of shares. With $71 billion in assets and $64.9 billion in debt, the bankruptcy was the fifth largest corporate bankruptcy at the time.

However, the lender entered a pre-packaged bankruptcy in agreement with its lenders, in a move to try and stabilize any flight from its capital markets business as it renegotiated roughly $10 billion in debt.

"Disruptions in the credit markets coupled with the global economic deterioration that began in 2007, and downgrades in the company's credit ratings" hindered the company's ability to finance its operations, the company said in a regulatory filing.

Nevertheless, CIT was quickly able to re-emerge from bankruptcy with a more manageable debt. Only a month after its bankruptcy filing, CIT won approval to exit bankruptcy having reduced its debt by $10.5 billion to $55 billion and extending other liabilities by three years, improving the company's liquidity.

In exchange for their claims, unsecured CIT creditors were given a 70 cent on the dollar repayment and new equity in the lender. Shareholders, including the U.S. Treasury were wiped out.

In its market debut, the company's shares surged as much as 10% to $29.64. Since then the company's stock has gained nearly a third, on an improving outlook for its business. Meanwhile, bank competitors like Bank of America (BAC) and Citigroup (C), and financing competitor GE Capital have seen a weaker stock performance.

In February, the company and its chief executive John Thain, the former Goldman Sachs executive and Merrill Lynch head, decided to buy back $4 billion in debt needed during its bankruptcy exit, in a push to gain investment grade credit ratings.

"This is a significant milestone for CIT," said Thain in the statement, noting an improved financial flexibility. At the time, the company's credit ratings were B2 with a "stable" outlook from Moody's and B+ with a "positive" outlook from S&P.

After the debt deal, Guggenheim Partners analyst Jeff Davis noted that the move will lower CIT's cost of capital, but a change to "frest start" accounting treatment may depress its GAAP earnings. As CIT's ratings improve, Davis says that the company may return to the bond markets to refinance $9 billion of upcoming debt maturities. For now, he notes that investors should focus on the company's pre-tax earnings and its $4 billion in unused net operating loss provisions, which could boost earnings.

"We believe investors are better served by focusing on pre-tax, pre-FSA earnings given the FSA issue and ~$4 billion of NOLs that have yet to be materially utilized," wrote Davis in a Feb. 13 note. He rates CIT shares "neutral" with a $39 a share price target.

CIT Group is expected see its profitability increase dramatically in 2012 and 2013, according to consensus analyst estimates compiled by Bloomberg. The lender is expected to earn $225 million in profit on revenue of $1.75 billion in 2012 and benefit from sales above $2 billion in 2013, which will more than double profits to over $600 million.

Analysts polled by Bloomberg give CIT Group shares a $44 a share price target, with 11 "buy" recommendations to go with 7 "holds" and 1 "sell."

8 of 11

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASDAQ 4,442.6980 -2.2110 -0.05%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs