Lender CIT faces bankruptcy filing/Retailers plead for government help to save CIT Group

Lender CIT faces bankruptcy filing- US Treasury faces $2.3bn loss of bail-out funds
Copyright The Financial Times Limited 2009
Published: July 16 2009 01:02 | Last updated: July 16 2009 01:02
http://www.ft.com/cms/s/0/1cefff8c-7198-11de-a821-00144feabdc0.html


CIT faced the prospect of a bankruptcy filing or other restructuring on Wednesday as hopes of a government-led rescue plan for the troubled US middle-market lender were dashed.

“There is no appreciable likelihood of additional government support being provided over the near term,” CIT said in a statement late on Wednesday. “The company’s board of directors and management, in consultation with its advisers, are evaluating alternatives.”

CIT has battled a liquidity crisis and faces $1bn of debt maturing next month, but it is locked out of the wholesale funding markets.

The lender may be short of potential buyers, say people close to the company, because CIT’s funding model is flawed and few banks are willing to take over its book of middle-market business loans.

If the group were to file for Chapter 11 protection, it would be likely to be the fourth-largest bankruptcy by assets. A bankruptcy filing by CIT would probably mean the Treasury would lose its $2.3bn in bail-out funds it gave the company.

Until late Wednesday, CIT was in tense negotiations with the Federal Deposit Insurance Corporation, the Federal Reserve and the Treasury over measures that could keep it afloat.

It was seeking permission to issue government-backed bonds and transfer assets to its banking subsidiary to bolster its balance sheet after eight consecutive quarters of losses.

However, CIT’s requests faced “too much resistance” in Washington, according to a person close to the company.

Tim Geithner, Treasury secretary, told a press conference on Tuesday that he was confident that the government had the authority and the ability to address the crisis at CIT.

The fact that thousands of small businesses depend on CIT for funding had fuelled a debate in recent days about whether a failure could arrest a tentative recovery in the US economy.

CIT has lent more than $60bn to 760 manufacturing clients and 300,000 retailers.

On Wednesday night the US Treasury said that it had assembled a “powerful set of innovative financing mechanisms” to restart the flow of credit.

However, it added: “Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies.”

Reporting by Saskia Scholtes, Henny Sender, Francesco Guerrera and Julie MacIntosh in New York and Tom Braithwaite in Washington






Retailers plead for government help to save CIT Group
By Sandra M. Jones
Copyright © 2009, Chicago Tribune
1:26 PM CDT, July 15, 2009
http://www.chicagotribune.com/business/chi-biz-cit-group-july15,0,6677978.story


The nation's two largest trade groups for retailers and clothing makers sent urgent pleas to Washington on Thursday asking for government aid to save CIT Group Inc., saying the finance company's failure would exacerbate an already weakened industry.

The National Retail Federation, in a letter to Treasury Secretary Timothy Geithner, asked for "all possible government assistance," noting that if CIT were to fail, it would set off a chain reaction that could leave retailers with a shortage of merchandise during the critical holiday season.

"CIT is most certainly too important to the retail industry to be allowed to fail," Tracy Mullin, CEO of the Washington, D.C.-based trade group, said in the letter, "and the retail industry is too important to the economy to be placed under additional stress."

The American Apparel and Footwear Association, which represents suppliers, said that if CIT were to file for bankruptcy protection, it would have a "crippling impact on manufacturers who would instantly lose credit approval for customers as they enter the critical months of the fall shipping season."

CIT disclosed this week that it is talking to federal regulators about steps to keep it afloat. The New York-based company ranks as one of the nation's biggest providers of factoring services, a business practice that keeps goods flowing from manufacturers to retailers.

The American Apparel and Footwear Association, which represents suppliers, said CIT accounts for 60 percent of the factoring in the clothing and shoe industry.

"There is no level of the supply chain that CIT Group does not touch, from suppliers of thread and material to the manufacturer, to the retail shelf," said Kevin M. Burke, CEO of the Arlington, Va.-based trade group, in a letter to Senate Banking Committee Chairman Christopher Dodd (D-Conn.), House Financial Services Chairman Barney Frank (D-Mass.) and Geithner.

Retailers are in the midst of placing orders for the holiday shopping season, a period in which they generate the biggest portion of their annual sales. The retail industry has yet to recover from a fall off in consumer spending that began late last year. Consumer spending accounts for more than two-thirds of the nation's economy.

smjones@tribune.com