by Calculated Risk on 10/30/2009 02:08:00 PM

From the WSJ: CIT, Icahn Reach Tentative Deal Over Lender's Restructuring

As part of further discussions with CIT, Mr. Icahn has agreed to back down while the company restructures in bankruptcy court. ...

The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11 ...

... CIT asked bondholders to vote on a prepackaged bankruptcy plan, which would give most bondholders new debt it values at 70 cents on the dollar, and all the equity in a restructured company.

This debt-for-equity swap makes the most sense and would allow CIT to continue to operate.

Note: CIT provides financing for about one million small businesses, so a prepackaged bankruptcy that allows the company to continue to operate would be helpful. Small businesses are already having trouble obtaining credit, and this might be impacting hiring plans (see from Melinda Pitts at Macroblog: Prospects for a small business-fueled employment recovery )