CIT troubles could hurt furniture industry

Financial company is largest factoring provider

Furniture Today Staff -- Furniture Today, July 16, 2009

HIGH POINT — CIT Group, the largest factoring company in the home furnishings industry, is facing an uncertain future after its request for more federal bailout money apparently was denied, according to news reports.

Many in the furniture industry worry that a possible bankruptcy for CIT could cut off a source of funding for suppliers and retailers. In addition, some suppliers owed money by CIT are now worried about whether they will get paid.

While CIT's furniture factoring business is profitable, the lender has other businesses that are losing money. It's unclear what a bankruptcy could mean to furniture supplier clients owed money by CIT for receivables, and to the retailers who are extended credit through the firm.

Suppliers that factor through CIT wonder if those payments due for receivables would become unsecured claims in a possible bankruptcy filing.

Many suppliers use the factoring funds - which in effect are asset-based loans on product delivered to retailers - as working capital, an industry source said. Those companies could be struggling to make payroll or finance other operations if such funds are frozen in bankruptcy proceedings.

"CIT is extremely important to this industry," said industry analyst Jerry Epperson of Mann, Armistead & Epperson. "CIT has understood this business and has had professionals in this business for a long time."

CIT also is a major player in the textile industry. The National Council of Textile Organizations urged the federal government to prevent a CIT failure, which it said could cause bankruptcies and job losses.

"In this terrible economic climate, our members tell us that the loss of factoring and loan instruments from CIT could put many textile companies and their suppliers out of business," said NCTO President Cass Johnson. He added, "Many manufacturers are running on survival mode right now — a major disruption in financing and factoring would be enough to put many of them under, particularly since there is no substitute for an institution which offers the size and breadth of services to small businesses that CIT does."

George Revington, president and CEO of Home Meridian International, parent of furniture manufacturers and importers Pulaski and SLF, also urged action to save CIT.

"It's just remarkable that the government can bail out clearly failing industries that will have not created new jobs in decades, and pull the lifeblood out of small businesses, which is one part of the economy that does create jobs," said Revington. "They are just leaving them high and dry."

While most of CIT's business segments lost money in 2008, according to the company's annual report, its trade finance segment - which provides factoring to furniture companies and others - reported net income of $99 million with a 12.1% return on risk-adjusted capital. Over all, however, the company lost $633 million as other segments were unprofitable.

Terry Oelschlaeger, executive vice president and Southeast regional manager for CIT Commercial Services in Charlotte, N.C., referred questions to CIT spokesman Curt Ritter, who could not be reached immediately for comment. Oelschlaeger's office handles the bulk of furniture accounts for CIT.

Other large factoring companies in the industry include Wells Fargo, GMAC and BB&T.

Kevin O'Connor, president and CEO of Samson Marketing, which oversees manufacturers Universal and Legacy Classic, said his company doesn't use factoring. But for those who do, a CIT meltdown would be "huge," he said.

"In this economy, it's not like a supplier can simply go out and shop for a new factor and or lender. There are no new lenders coming into the market and the remaining few are not anxious at this point in time, to take on new business," he said.

In addition to providing financing, companies like CIT can serve as a credit department to suppliers - sizing up which ones are creditworthy enough to sell to.