CIT bankruptcy could have domino effect
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.”
from DealZone:
Icahn takes a shot at CIT “Tammany Hall” financing
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.
Would a CIT bankruptcy hurt your business?
CIT’s bailout talks with the government have fallen apart, setting the stage for a possible bankruptcy filing.
The lender provides crucial funding to small and mid-sized U.S. businesses, from clothing manufacturers to Dunkin Donuts franchises.
Founded in St. Louis in 1908, CIT boasts on its website that 1 million business customers depend on it for financing. Many may now have to depend on someone else, at a time credit markets remain tight, reducing business activity as the government tries to lift the economy out of recession.
Is your business affected by CIT’s struggles? Have you found it difficult to obtain financing since the financial meltdown? We want to hear your stories in the comments section.
CIT files for bankruptcy as they finally seem to have exhausted all of their options. It remains to be seen what the ripple effect of the CIT news will be on small and midsize businesses (SMBs), and the economy as a whole. The fallout of CIT will only exacerbate the struggle for these companies- especially retail and manufacturing. For our economy – and the small and midsize companies that drive it – to fully recover, it is imperative that they have broad access to small business financing.
There is one silver lining for the companies, The Receivables Exchange (www.receivablesxchange.com). The Receivables Exchange stands ready with more than $20 billion in liquidity from leading hedge funds, banks, ABL, factors and other accredited institutional investors to fill the liquidity gap these nearly one million companies will face. Our market-based solution delivers an efficient source of liquidity at competitive rates and stands ready to have our global network of accredited institutional receivables buyers compete to bid on the outstanding invoices of these companies. The Exchange can help these SMBs protect against exposure to a single source of liquidity and gain ready access to credit- all on their own terms.
peHUB: If CIT goes down, these companies may be hurting
peHUB’s Erin Griffith reports:
Buyouts Senior Editor Ari Nathanson and I compiled a list of buyout-backed companies which have used CIT as a lead arranger on its credit facility over the last three years, courtesy of Thomson Reuters data.
We came up with 38 companies.* Of those 38, CIT provided a revolver loan to all but two. For companies that haven’t drawn down their revolver (including this week’s run, which has only added to the company’s demise), the sudden disappearance of CIT could mean the sudden disappearance of all liquidity.
The interesting part is the amount of repeat business on the list. It brings new meaning to the “strong lender relationships” often touted by buyout pros. The one thing they don’t brag about is how a “strong relationship” with a failing lender could wind up being worse than no relationships!
For example, Wind Point Partners used CIT for four of its portfolio companies. Thoma Cressey Equity Partners (before Carl Thoma and Brian Cressy split up) also has four CIT-led credit facilities in its portfolio. Sentinel Capital Partners and Baird Capital Partners each have two companies with CIT facilities.
View the entire list below.
*We eliminated a few that have since been sold, but haven’t checked that each of the 38 are still owned by their listed PE backer.
If CIT common is now worthless, why is it trading on the otcbb