Bondholders providing new funding to CIT

Will supply financing lender needs to avoid bankruptcy

Clint Engel -- Furniture Today, July 20, 2009

The company - the biggest name in furniture industry factoring and a major lender to small and mid-sized businesses across the board - is working to secure $3 billion in financing from six of its largest bondholders, according to financial news reports, and will pay a pricey $10.5% in interest for the funds.

That should provide CIT the money it needs to meet $1 billion in debt obligations coming due next month, according to a Wall Street Journal report. And it buys time for a company that many worried would wreak havoc on the furniture industry should it file for bankruptcy and possibly cut off a key source of financing for both suppliers and retailers.

Jim Ziozis, president of furniture and rug source Linon Home Décor Products, said the deal is "very positive news. It's too early to know the medium-term effects, (but) I think it's great that they staved off bankruptcy ... and they're going to have an opportunity to restructure their debts and businesses outside of bankruptcy.

"This shows that there was quite a bit of value in the company for more cash to have gone in without a bankruptcy."

Ziozis said that while the interest on the new financing sounds high, it is comparable to the cost of corporate money raised recently by many other businesses, including conglomerate General Electric, which struck a preferred dividend stock deal with Berkshire Hathaway that gave the investor a similar-sized annual return.

"Why is everybody staring at CIT raising corporate money at 10.5% when GE and many others have raised money in approximately the same range?" he said.

Borrowing costs for everyone are getting more expensive, he said. That's putting more pressure on the furniture industry, which is not seeing any sales increases.