CIT: We'll keep lending
'Business as usual' despite Chapter 11
By Clint Engel and Heath E. Combs -- Furniture Today, November 9, 2009
New York — CIT Group, which filed for Chapter 11 bankruptcy protection Nov. 1 in an effort to wipe away billions of dollars of debt, said it's still business as usual for its factoring arm.
CIT, a major factoring lender to the furniture industry — lending to companies based on their accounts receivable — and a key lending source to small to midsized businesses, said none of its operating subsidiaries were included in the filing and are expected to continue operating.
About 90% of the CIT debt holders voting chose bankruptcy over a debt exchange plan that the company also had proposed.
CIT said it expects to emerge from Chapter 11 before the end of the year. It also aims to cut its total debt by about $10 billion, reduce its liquidity needs and "enhance its capital ratios and accelerate its return to profitability." A court hearing to consider the reorganization plan is set for Dec. 8.
According to reports, the U.S. Treasury Department expects to recover little, if any, of the $2.3 billion in federal bailout money that went to CIT.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle-market customers, two sectors that remain vitally important to the U.S. economy," said CIT Chairman and CEO Jeffrey Peek.
CIT recently secured a new $4.5 billion credit facility, plus another $1 billion from bondholder Carl Icahn that will be used as a debtor-in-possession loan.
In its Chapter 11 petition, the company listed $71 billion in assets and $64.9 billion in liabilities. Under the prepackaged plan, CIT's stock will be cancelled when it emerges from bankruptcy and the lender's creditors will become its owner.
Terry Oelschlaeger, managing director of CIT Commercial Services in Charlotte, N.C., overseeing the bulk of the company's furniture factoring business, said the filing doesn't affect the factoring business for CIT or its furniture clients. He said his business unit is an operating subsidiary that isn't part of the filing, is adequately funded and "continues to do business as usual."
CIT's woes, however, have led some of CIT's factoring clients to take their business elsewhere, including La-Z-Boy's England upholstery operation, which now handles retail credit through La-Z-Boy's in-house credit department in High Point.
"At any given point in time we lose clients and we gain clients," Oelschlaeger said. "The majority continues to do business with CIT as in the past, and we have continued to solicit new business in the furniture industry throughout 2009."
According to the National Retail Federation, CIT provides factoring financing to about 2,000 suppliers selling goods (furniture and other products) to about 300,000 retailers across the country.
Ray Steele, vice president of sales for accent furniture source Ultimate Accents, said he has seen no change in funding availability from CIT Group.
"As far as currently, we submit and they pay," he said. "It's not that we wouldn't look at another factor, but if CIT continues onward and upward there's no reason for us to switch."
In a September SEC filing, Hooker Furniture expressed concern about the ability to collect funds from CIT if it were to file for bankruptcy and noted that in July, Hooker changed its agreement with the factor to allow Hooker to retain ownership of the receivables it assigns to CIT for collection.
Larry Ryder, Hooker executive vice president of finance and administration, said the supplier hasn't seen a change in CIT's advancing of funds to the company and he doesn't expect any. He said any credit tightening is more likely to be a result of business conditions.
"I think there's plenty of credit available at CIT right now for creditworthy retailers," he said.
In bankruptcy court documents, CIT said the company lost access to certain commercial paper markets because of credit downgrades in 2008. That led it to draw down several revolving credit facilities.
As of June 30, CIT's trade finance segment, which handles furniture factoring, among other items, held assets of $5 billion, or 7.9% of the company's total finance and leasing portfolio assets.
"Most of us in the home furnishings business have a hard time understanding the whole financing structure and complexity thereof of a company like CIT," said Jim Ziozis, CEO of importers Linon Home Décor Products and Powell. But he said it's clear that CIT's division handling factoring and lending to wholesalers, retailers, importers and distributors "has been profitable for decades and is still one of the crown jewels of the holding company."
Ziozis said he believes CIT will work on "getting their financial house in order, and then they focus on maximizing their core profitable businesses, which I think is positive for the whole home furnishings, wholesale and retail industry along with other wholesale/distribution businesses that work with the retail trade."
