WILMINGTON, Del., Oct 2 (Reuters) - A group of CIT noteholders asked a federal judge to annul a claim on CIT Group Inc assets by Barclays Bank and others, which loaned $3 billion to save the company from bankruptcy this summer.
A unit of CIT Group knew it would become insolvent as a result of the rescue loan, the group of investors and hedge funds said in a New York federal district court complaint.
The rescue loan allowed the company to avert default on senior notes that came due in August, although the company's financial troubles have continued.
CIT Group launched a debt exchange offer on Thursday in the hope it would help prevent the struggling lender to small and mid-sized companies from filing for bankruptcy.
The complaint, dated Sept. 23, said the plaintiffs held $362 million in unsecured notes, or 16.4 percent of the total, that were issued by CIT Group Funding Co of Delaware LLC.
The complaint also named the unit as a defendant, along with roughly 20 investment funds.
CIT pledged the unit's assets to back the rescue loan. That pledge amounted to a fraudulent conveyance, the noteholders said, because CIT knew the unit was insolvent or would become insolvent as a result of the collateral pledge.
The noteholders said the rescue loan subordinated their claims to the claims of the $3 billion rescue loan. As a result, the unit would not be able to meet its obligations as they come due, beginning with a $1 billion payment due in July.
The noteholders asked the judge to annul the lenders claims and grant class action status to investors in notes issued by the CIT unit.
CIT shares ended up 10.4 percent on Friday at $1.17.
Lawyers for the plaintiffs could not be reached for comment. A CIT Group spokesman said the company did not comment on pending litigation.
The case is In re ACP Master Ltd et al v CIT Group Funding Co of Delaware LLC et al, U.S. District Court for the Southern District of New York, No. 09-8144.
(Reporting by Tom Hals; editing by Andre Grenon) Keywords: CIT/LAWSUIT (thomas.hals@thomsonreuters.com; 1-302-993-6283; Reuters Messaging thomas.hals.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
A unit of CIT Group knew it would become insolvent as a result of the rescue loan, the group of investors and hedge funds said in a New York federal district court complaint.
The rescue loan allowed the company to avert default on senior notes that came due in August, although the company's financial troubles have continued.
CIT Group launched a debt exchange offer on Thursday in the hope it would help prevent the struggling lender to small and mid-sized companies from filing for bankruptcy.
The complaint, dated Sept. 23, said the plaintiffs held $362 million in unsecured notes, or 16.4 percent of the total, that were issued by CIT Group Funding Co of Delaware LLC.
The complaint also named the unit as a defendant, along with roughly 20 investment funds.
CIT pledged the unit's assets to back the rescue loan. That pledge amounted to a fraudulent conveyance, the noteholders said, because CIT knew the unit was insolvent or would become insolvent as a result of the collateral pledge.
The noteholders said the rescue loan subordinated their claims to the claims of the $3 billion rescue loan. As a result, the unit would not be able to meet its obligations as they come due, beginning with a $1 billion payment due in July.
The noteholders asked the judge to annul the lenders claims and grant class action status to investors in notes issued by the CIT unit.
CIT shares ended up 10.4 percent on Friday at $1.17.
Lawyers for the plaintiffs could not be reached for comment. A CIT Group spokesman said the company did not comment on pending litigation.
The case is In re ACP Master Ltd et al v CIT Group Funding Co of Delaware LLC et al, U.S. District Court for the Southern District of New York, No. 09-8144.
(Reporting by Tom Hals; editing by Andre Grenon) Keywords: CIT/LAWSUIT (thomas.hals@thomsonreuters.com; 1-302-993-6283; Reuters Messaging thomas.hals.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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