By Jayne O'Donnell, USA TODAY
Contributing: Pallavi Gogoi, Reuters, Associated Press
Small- and midsize-business financier CIT Group's bankruptcy protection filing Sunday could put most of its clients back into the precarious position the federal government was trying to prevent with its $2.3 billion cash infusion late last year.
CIT is the largest of the so-called factoring companies that provide capital to clients based on their accounts receivable to tide them over until they're paid.
The filing by CIT, the leading provider of financing to retailers and their vendors, is one of the largest in U.S. history and affects 2,000 of these clients but not the company's other operating subsidiaries. CIT expects to reduce its total debt by about $10 billion.
CIT says its creditors have already approved its prepackaged Chapter 11 reorganization plan and that it plans to emerge by the end of the year.
Like its clients, CIT had been struggling to find funding of its own. Sources, such as short-term debt, that it used to be able to rely on had dried up in the credit crisis. Babson College management professor Peter Cohan says CIT "got distracted by subprime mortgages and student loans" and will now likely have to focus on lending to small and midsize businesses.
Even if it emerges intact, more than three-quarters of its clients will likely need alternative financing, says Joe Alouf, senior managing partner of the crisis turnaround and restructuring company Eaglepoint Advisors.
CIT has already scaled back on lending. In the first six months of 2009, CIT provided 1% of all Small Business Administration loans. In 2008, it provided 6% of all SBA lending, the National Small Business Association says.
"If you were a customer of CIT, and you haven't done so already, you're going to need to scramble to find someone," Alouf says. "A lot of these traditional asset-based borrowers will have the ability to go to a more traditional bank, but for the weaker, smaller ones, there is no guarantee a new institution is going to accept them and under what terms."
**(MY THOUGHTS ON THIS: Ok, I had to break in right here because, as we all know, Obama thinks he is on some gigantic 'Monopoly' board, and is trying to 'take control' of every aspect of the business world, i.e. the automotive industry. Now, I have to ask, what will happen if these businesses end up having to go to a bank, if Obama has control over it, and they get turned down? Wouldn't that mean that small businesses would become a 'thing of the past'?)**
CIT clients and industry officials have rallied to its support as its fate grew more questionable this year.
"If CIT were to go away, it would take a financing option away from our franchisees who want to buy stores or expand their networks," Dunkin' Donuts spokeswoman Michelle King said on CIT's website.
National Retail Federation CEO Tracy Mullin said "a failure of CIT would impact thousands of retailers and, consequently, the consumer spending that makes up two-thirds of our nation's economy. That cannot be allowed to happen at a time when retailers are already struggling to survive the national recession."
RECOVERY WATCH: Tracking the economy; see VIDEO
About the only option for retailers who can't get credit is raising equity, and that's a long shot these days, Alouf says. "The question is what do you do if you cannot find what is absolutely a lifeline to your business. It's like if someone told you the company that delivers oxygen tanks to your house is going out of business."
Along with where they shop, the filing is expected to have another effect on consumers: Their $2.3 billion investment is expected to be wiped out as well.
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Ok, on that last line, does this really come as no surprise to any of you? We have alreaddy wittnessed what Obama's 'stimulus packages' create--Jack and Squat--so, does it really come as no surprise that we [taxpayers] are going to lose MORE money?
I mean, come on, someone please tell me that Obama cannot see this. Or, maybe he DOES see it, and he just doen't care, because he WANTS this country to go bankrupt to the point of no return.
How much longer are we going to put up with the crap that is happening to us?
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Ben Ferguson Show
Ronald Reagan Speech--A very good lesson for Obama to learn!
Government's first duty is to protect the people, not run their lives.
4 comments:
ahhh banking...I just left that industry.
Thanks for stopping by the other day. I added you to my blog list.
What bothers me more is the demonization of these companies. They made bad decisions, but the idea of fleecing customers? Simply not true.
I wonder how many hundreds of billions will pump this bank back up. I guess they can just print it.
To me, none of this makes any sense. Why, all of a sudden, is it the White House's business or job to 'take control' of certain companies???
In my 42 years, I have NEVER known of a president to do this. It is insane.
Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.
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