Small and medium-sized businesses are wild with concern that the bankruptcy filing of CIT Group will cut off the financing they use to pay employees and creditors, according to an attorney who has many apparel and retail businesses among his clients.

"My phone has not stopped ringing," said Jerry Reisman, a partner at law firm Reisman, Peirez and Reisman in Garden City, New York. Reisman said he represents 21 groups that depend on CIT for factoring and other financing. He also represents an additional four parties that have applied to CIT for new business financing.

"People were astonished. They don't know what to do," said Riesman, who took more than 10 calls during Sunday's baseball World Series game and at least 10 more on Monday morning before 10 am EST.

"They have to make payroll this week -- they don't know whether they will be able to meet obligations for payroll or for suppliers."

One of the biggest concerns is so-called antecedent debt, which refers to checks from CIT that its clients have received in the past 90 days, said Reisman.

"Any money received from CIT in payment of antecedent debt is considered a preference, and, under the bankruptcy code, has to be returned to CIT," he said. "It could cause my clients to have to file bankruptcy. This could have a staggering domino effect. It's going to be devastating. It will destroy their own businesses."

Reisman said his firm is trying to find other sources of financing for his clients. "But now the problem is, some of them don't qualify because credit markets have tightened," he said. "They don't qualify for financing from other lenders."

Dunkin Donuts franchisees are particularly concerned, said Reisman.

"I also have as clients people who want to purchase Dunkin Donuts franchises, who have applications for financing pending. CIT has been the lender of choice, and we're not sure if CIT will be able to fund the acquisitions," he said.

How will CIT’s bankruptcy affect your business? Post your comments below:

As if CIT didn’t have enough problems digging itself out of a credit morass, now it has Carl Icahn to contend with. Troubled by what he sees as sweetheart deals between CIT and its largest creditors, at the expense of the little-guy bondholder, Icahn has offered to underwrite the $6 billion the small-business lender says it needs to survive. Icahn’s offer sent CIT shares soaring by double digits … to well above a dollar.

In a letter to CIT’s board, Icahn said certain large bondholders are being offered an opportunity to purchase secured loans at prices well below their fair market value.

In the end, Icahn underwriting offer may serve more as a publicity stunt than a White Knight vanguard attempt to save CIT, which is busy searching for a new CEO — presumably, a restructuring artist.

A week ago CIT CEO Jeffrey Peek told the company he would retire, thumbing his nose at a fresh one-year contract renewal and firming up market expectations that the company would soon seek bankruptcy protection. It’s hard to accept that the 11 percent stock move this morning represents a serious shift in that expectation.

CIT Chief Executive Officer Jeffrey Peek plans to retire at the end of the year, but the company could well be bankrupt before it concludes its search for a replacement.

Dan Wilchins and Paritosh Bansal report that bondholders are showing little interest in exchanging their debt for equity in the troubled lender to small- and medium-sized businesses. Earlier this month it said it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy. CIT listed $71 billion of assets on its balance sheet as of the end of June.

Peek, formerly an executive at Merrill Lynch, has led CIT since 2003. He has been widely criticized for being slow to recognize the extent to which the credit crunch would stress the company’s business model by lifting its borrowing costs. If a white knight is anywhere in sight, he better have something more convincing to sell bondholders than green shoots and the promise of a better tomorrow, as about $3 billion of debt comes due in the fourth quarter.

Reuters will be providing live updates on Thursday at noon ET from bankruptcy court in Phoenix for the auction of the National Hockey League’s Coyotes. Canadian billionaire James Balsillie and NHL Commissioner Gary Bettman are expected to take the stand.

Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group to help manage and break apart the insurer, the Wall Street Journal said, citing its own analysis.

The following M&A related stories were reported by Reuters and other media on Thursday:

Jewelry retailer Finlay Enterprises filed for Chapter 11 protection and said it would sell its assets in an auction supervised by the bankruptcy court. The company listed assets and debt in the range of $500 million to $1 billion in its filing, Reuters reported.

Indian cellular firm Aircel, 74 percent owned by Malaysia’s Maxis, has shortlisted four firms including American Tower and Bharti Infratel to conduct due diligence as it looks to sell all or part of its tower operations, Reuters said.

China South City Holdings, an operator of a wholesale and logistics centre in Shenzhen, is expected to revive its Hong Kong listing plan next month, raising $500 million for expansion, the South China Morning Post said.

UK broadcaster ITV is set to sell social networking site Friends Reunited to DC Thomson, publisher of the Beano comic for 25 million pounds, the Financial Times said.

Delphi may close to the finish line, bringing to a close its four-year-long bankruptcy. The Pension Benefit Guaranty Corporation says it will take over the pension plans of 70,000 Delphi workers and retirees. That can’t be anything but good news for potential bidders for Delphi assets.

Talks between Delphi and its lenders have been progressing toward a compromise deal that would supersede a bid by private equity firm Platinum Equity favored by GM and the U.S. Treasury, sources have told us. What else might it take to get Delphi to the finish line? The next few days will tell if enough has been done.

Last night the federal judge hearing the case postponed the auction of Delphi’s assets until Friday. A hearing to approve the reorganization plan (or sale) is now scheduled for next Wednesday. Delphi said it expects to announce the outcome of the auction perhaps by Monday. What’s a few more days after years in the tank?

With government talks aimed at averting its collapse having, er, collapsed, CIT appears to be headed for bankruptcy. Dire predictions about a wave of failures by small and medium-sized businesses are still echoing, sustained by uncertainty. The suggestion that other lenders are going to step in and offer financing to CIT clients sounds hollow in the lingering recession.

Paritosh Bansal and Jui Chakravorty spoke with investment bankers who said asset sales under duress would not only draw fire-sale prices in depressed markets — a lethal combination, as AIG found — but could also lead to legal challenges from creditors if deals are rushed through ahead of a bankruptcy filing. Much like AIG, CIT is having trouble valuing its loans. Private Equity is also unlikely to show much interest.

Government efforts to avoid or manage bankruptcy elsewhere in finance and in the auto industry have led, at best, to inefficiency in clearing the dross from the boom years. At worst, the result has been a degradation of faith in investing in credit.

Yesterday we argued that a lender to small and medium-sized businesses would find more broad political support among conservatives, who count on small business as their base. Clearly, that isn’t paying off. But it’s also worth asking who, exactly, is issuing the dire predictions about the impact to the American dream of a CIT collapse.

This week's Thomson Reuters Investment Banking Scorecard shows bankruptcy-related M&A at a five year high.

There were five bankruptcy-related M&A deals announced during the week, including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million. 

So far this year there have been 173 bankruptcy-related deals, the highest level since the same period of 2004 when there were 202.

During 2009 the most bankruptcy-related M&A deals have occurred in the industrials sector with 23 percent, followed by the media and entertainment sector with 16 percent. 

In terms of geography, U.S. targets represent 83 deals or 48 percent of the total of bankruptcy M&A.

This is hardly surprising given the speed with which some of the biggest bankruptcies have happened in the U.S. -- with a little help from section 363 easing rapid asset sales at GM and Chrysler.

The rest of the world probably has some catching up to do.

The Thomson Reuters Investment Banking scorecard lands again. Here are the highlights:

BAAT Offers Largest Auto Loan Securitization of 2009

A US asset-backed offering fell among the top global debt deals of the week, as Bank of America Auto Trust (BAAT) offered a $3.9 billion TALF-eligible auto loan securitization, the largest such ABS offering this year.  In total, auto loan backed issues have accounted for 35.7% of US ABS, the largest share of the approximately $80 billion so far in 2009.

As a whole, securitizations are down 30% in the US and 39% globally over 2008 levels.  This week marks the third largest week for ABS activity in the US during 2009 with $9.7 billion of issuance.

Bankruptcy-related M&A at Five Year High

Five bankruptcy-related M&A deals were announced this week, including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million.  Year-to-date, 173 bankruptcy-related deals have been announced, the highest level since the same period of 2004 when there were 202.

In 2009 the most bankruptcy-related M&A deals have occurred in the Industrials sector with 23.1%, followed by the media and entertainment sector with 16.2%.  By nation, US targets represent 83 deals or 48.0% of bankruptcy M&A.

Singapore Company Follow-On Activity at Record High

Among the largest equity deals of the week was a $984.6 million follow-on offering by Singapore-based Neptune Orient Lines.  Year-to-date, Singapore follow-on volume totals $7.8 billion from 20 issues, nearly 11 times higher than the same period in 2008 when volume was $707.3 million and the highest year-to-date volume ever.  Total equity and equity related volume in Singapore is also at all-time record levels in 2009, reaching $8.1 billion.

Equity and equity related volume in Asia Pacific stands at $75.6 billion so far this year, a 6% decrease from last year.

A U.S. federal judge has authrorized the sale of General Motors’ most profitable assets to a “new GM,” backed by the government, in a move seen as crucial for the automaker to exit bankruptcy protection.

The decision by Judge Robert Gerber of the U.S. bankruptcy court in Manhattan came after three days of hearings to address the 850 objections to the restructuring plan. In his 95-page opinion, Judge Gerber wrote that the sale would “prevent the death of the patient on the operating table.”

Under the terms of the revised deal, G.M. would sell its best assets, including the Chevrolet, Cadillac, Buick and GMC brands, to a new company owned largely by the American and Canadian governments and a health care trust for the United Automobile Workers union.

That still leaves the question of the “old GM,” which includes Opel, Vauxhall and Hummer. Just as people thought that GM’s plan to sell Opel and Vauxhall to Canadian auto supplier Magna International was a done deal, China’s Beijing Automotive Industry Holding made a concrete offer to buy both brands for $924 million. That leaves the future of Opel uncertain for now.

Also not a done deal: GM’s plan to sell Hummer to China’s Sichuan Tengzhong. The potential buyer is in talks with Chinese regulators to win approval for its acqusition, but there are no guarantees it will get the green light.