Commentaries

CIT doomed by PE

Matthew Goldstein

Jul 16, 2009 14:05 UTC

The most compelling argument for saving CIT Group from collapse is the impact it would have on small- and mid-sized business that depend on the New York-based lender for financing. But it’s increasingly looking like that argument is more hype than anything else.

First of all, CIT pretty much hasn’t been doing any new lending for the past six months, when its financial troubles really began to mount. Most of the lines of credit the firm has out to hundreds of thousands of small companies were arranged long before the collapse of Lehman Brothers.

Second, and maybe the best reason for letting CIT fail, is that a good number of CIT’s financing deals are with companies owned and operated by private equity firms. Our sister publication PEHub reports that in recent years, CIT has moved aggressively to provide financing to mid-sized companies that were taken over in leveraged buyouts. PEHUB has found at least 36 PE-owned companies that CIT is the primary lender to.

For instance, CIT has provided the bulk of the financing to Texas-based chain CiCi’s Pizza, acquired by Canadian private equity firm Onex in 2007. CIT’s financing has been provided the fuel for the chain’s rapid expansion.