CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a pre-packaged reorganisation plan which will reduce total debt by US$10 billion while allowing the company to continue to do business.

The bankruptcy protection filing is one of the biggest in US corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors.

CIT's bankruptcy filing shows US$71 billion in finance and leasing assets against total debt of US$64.9 billion.

A pre-packaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year.

In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.

Funding for vital areas

"The decision to proceed with our plan of reorganisation will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the US economy," said Jeffrey M. Peek, chairman and CEO.

Peek has said he plans to step down at the end of the year.

CIT's move will wipe out current holders of its common and preferred stock.

That means the US government will likely lose the US$2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company.

Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 per cent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 per cent equity position, according to CIT's filing.

Fending off disaster

CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July.

It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.

The company received US$4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a US$1 billion line of credit from billionaire investor and bondholder Carl Icahn.

But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least US$5.7 billion from its debt burden and given CIT more time to pay off what it owes.

- AP