CIT Group gets $3 billion in financing
Deadline looming on recapitalization plan
Heath Combs -- Furniture Today, July 30, 2009CIT Group completed $3 billion in financing on Wednesday that was arranged by bondholders last week to help the troubled factoring company stave off bankruptcy.
CIT's future has been in question over the last several weeks as two years of losses threatened to push the firm into bankruptcy.
The company, the largest factoring firm to the furniture industry, secured $3 billion in financing from some of its largest bondholders. The financing carries an interest rate of more than 13%.
The company has drawn $2 billion of the loan so far, SEC filings said. CIT is using the money in part to pay off $1 billion in debt that matures in August.
Under a recapitalization plan, it is offering debt holders $825 for every $1,000 in notes tendered by July 31 and $775 per $1,000 in notes tendered after that date.
If the offer for the notes does not meet 90% of the principal or if the tender condition is not waived, the company said it may still need to file for bankruptcy protection.
CIT estimated last week in SEC filings that its funding needs for the year ending June 30, 2010, is $7 billion.
Also this week, Bloomberg reported that CIT backed out of a $225 million loan commitment to finance a Molson family bid to purchase the National Hockey League's Montreal Canadiens.
Another story by Bloomberg said New York-based CreditSights analysts said that a prepackaged bankruptcy is the best option for CIT to restructure its debt because the company's business model is broken.
Other recent stories have speculated that the company might sell some of its business units.
Some other factoring firms, meanwhile, are reporting that some CIT clients have been asked to find a new provider.
One company that is picking up clients is Chicago-based DSA Factors, according to President Howard Tolsky. He said the small factoring company, which primarily has served a furniture industry niche since 1987, has taken on some former CIT clients.
"What we've been hearing is CIT has asked clients of theirs - I'm getting the feeling small to medium-sized clients - to find somewhere else to go," Tolsky said.
He said he believed those accounts that have been asked to find alternative financing are primarily ones CIT is working with on a month-to-month basis, or with an annual contract that might be expiring.
"In the long run I'm pulling for CIT. I don't think it's would be a good thing for these vendors to not have a factoring company," Tolsky said. But he added, "I don't think there's any problem with factoring companies like ours picking up the slack."
He said DSA's program differs from CIT in that it offers a flat rate fee that would be higher than CIT's initial fee. But he said DSA becomes very competitive when comparing the total cost of CIT including charges, interest and fees.
DSA typically factors a range of $500,000 to $25 million in receivables for clients, Tolsky said.
"In that range our strong point is companies doing between two and five million," Tolsky said
Switching factors could be a problem for some companies.
Bew White, owner of casual furniture supplier Summer Classics, said some of the larger factors want to work only with big customers - for instance, those with at least $25 million a year in receivables, a much larger amount than CIT's small business customers would have.
White, whose company uses other banks and another factor in addition to CIT, said that the uncertainty surrounding CIT may be costing it business.
"The longer it goes on the more it hurts them. The only way to resolve this is to make the marketplace believe in them," he said.
Alternatives are slim. If a manufacturer can't find another factor, it will have to either set up its own credit department, and likely trim the credit offered to retailers, White said.
Ray Steele, vice president of sales for furniture source Ultimate Accents, said that CIT is still advancing funds, approving credit and purchasing receivables.
"I'm very confident they'll make it through the year," Steele said. "Even if the other part of CIT doesn't work, someone will buy the factoring division."