A U.S. bankruptcy judge set a December 8 hearing to consider approval of CIT Group Inc's reorganization plan, aiding the large commercial lender's effort to emerge from bankruptcy by year's end.

We are on a very fast track, Judge Allan Gropper said at a Tuesday hearing in Manhattan bankruptcy court.

A quick reorganization is crucial if New York-based CIT expects to retain most of its customers, and remain what its lawyer Gregg Galardi called a source of strength for its banking unit, which did not file for bankruptcy protection.

It is also crucial for the several hundred thousand small- and mid-sized businesses that depend on CIT for financing such as the operators of Dunkin' Donuts stores. Small businesses employ about half of the U.S. labor force.

This is a financial services company that has to make loans, and is perceived by the market to need to make loans, said Galardi, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP. There is a need for speed, he added.

Gropper also approved a series of CIT motions, including its requests to immediately borrow $125 million from Bank of America Corp and to pay workers and so-called critical vendors.

CIT filed for Chapter 11 protection on Sunday, one of the five-largest bankruptcies in U.S. history, to reduce $10 billion of debt following a failed debt exchange offer.

The filing came after CIT gathered support from most of its bondholders to restructure, and a $1 billion financing commitment from investor Carl Icahn.

CIT also has a dominant position in factoring, which often involves short-term financing for customers that provide merchandise to retailers. Wells Fargo & Co is also another provider of factoring.

According to its bankruptcy petition, CIT had $71 billion of assets and $64.9 billion of liabilities on June 30.

GOVERNMENT STAKE ENDANGERED

The reorganization plan calls for unsecured debtholders to receive 70 cents on the dollar of new notes plus new common stock.

By contrast preferred shareholders, including the U.S. government which injected $2.33 billion through the Troubled Asset Relief Program, could be wiped out. That would be the first realized loss for the $700 billion program.

Shares of CIT began trading on the Pink Sheets on Tuesday. In afternoon trading, the shares were little changed at about 25 cents.

CIT's operating units, including the bank, were not part of the bankruptcy filing.

It is likely that a post-bankruptcy CIT would depend more on deposits gathered by that bank to fund further lending for businesses, such as factoring and vendor financing.

Gropper has been a bankruptcy judge since 2000, and is also overseeing proceedings for the giant mall owner General Growth Properties Inc . He took over the CIT case from Judge Robert Gerber, who recused himself.

The case is: In re CIT Group Inc, US Bankruptcy Court, Southern District of New York, Case No. 09-16565.

(Reporting by Jonathan Stempel; Additional reporting by Chelsea Emery and Dan Wilchins; editing by Leslie Gevirtz and Andre Grenon)

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