November 3, 2009
Photo by lprole
CIT has been unable
to convince bondholders to finance more of their debt. This coupled with the fact that investors would lose money on the a pre-packaged bankruptcy, including the U.S., has caused the company to seek bankruptcy protection. The U. S. stands to lose $2.3 billion and opted not to supply more funds.
The only investor which seems to gain anything from this is Goldman Sachs, who will keep open its $2.3 billion loan in spite of the bankruptcy filing. CIT received a $4.5 billion dollar loan which will keep the company going during the bankruptcy proceedings and will not put the retailers at risk during the holiday season. CIT expects to emerge from this filing in a stronger position.
Many retailers have either gone out of business or cut back on their current operations as a result of the problems which CIT has had during the economic crisis. Retailers have depended on their support for factoring loans to purchase inventory. Many retailers, as a result are relying on their own money to keep their businesses open.
August 14, 2009
Photo by Lisa Gagne
As CIT was forced to pledge most of its assets to secure a $1 billion dollar note, the company has also agreed to “strengthen its management and risk oversight, submit a plan to raise capital and fix its loan loss accounting,” reported Colin Barr, Senior Writer for Fortune in his August 13, 2009 article.
This means CIT must review the salaries of top executives to insure that their high salaries are not causing the company’s financial failure. Colin Barr also note that CEO Jeff Peek “who has made $36 million since 2004 for leading the company to the brink of bankruptcy” signed the agreement with the FDIC.
In view of the securing of financing for CIT, there are still questions as to whether CIT will be able to continue, considering the fact that CIT has made its money by “borrowing money at low rates and lending it out at higher rates.”
Retailers now have money for Christmas inventory, but some of the retailers who need this money are at risk of bankruptcy, themselves.
August 12, 2009
Photo by Mario Hornik
Although CIT bondholders will not push
for bankruptcy, it is still possible for CIT Bank who is looking for the final $1 billion dollars by August 17, 2009 in order to pay a note that is due.
CIT is looking for ninety percent of the money in order to avoid the filing. This is a very tense situation for retailers who need factoring loans from CIT in order to buy Christmas inventory. If they do not get the loans or look for alternative financing, they may go out of business.
CIT is trying to restructure the company by selling off some of its assets. Restructuring has become a popular way for businesses to avoid bankruptcy in the economic crisis in the U. S., since refinancing is unavailable.
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July 28, 2009
CIT’s financial woes are affecting the small and medium businesses’ prospects of receiving factoring loans in order to buy Christmas inventory. Factoring involves selling a business’ inventory for cash. Many small and medium businesses were dependent on CIT to provided loans for the purchase of inventory for Christmas. In return, the companies would assign their accounts receivable to CIT.
Now is the time when the businesses need to purchase inventory for the Christmas season and if they do not receive financing, they may not be able to take advantage of increased sales for the holiday season.
It would be risky to enter into factoring negotiations with CIT now, since bankruptcy is still a possibility. If business owners sell their invoices to CIT and CIT files for bankruptcy before the businesses collect the funds, then they would risk losing the money under a bankruptcy.
July 27, 2009
Photo by Alxm
CIT bondholders have recommended that CIT file for bankruptcy with the purpose of restructuring the debt. Firms often file
for a Chapter 11 bankruptcy which allows them to restructure the debt to take advantage of lower interest rates.
However, this is not the end of the bank’s problems as they need another $700 billion to pay next year’s debt. In the end, if CIT does go out of business, their debts may be sold to the largest banks in the country. Small business owners would have additional funding through the Small Business Administration which will be guaranteeing small business loans beginning at the end of the month. Additionally, the Treasury Department has funding to buy up business loans.
As discussed in a previous post, there are other options available for small business owners who will be affected by CIT’s financial woes.
July 23, 2009
Photo by Idelphoto Courtesy of Stock Expert
CIT and its bondholders are negotiating
how to release the remaining $1 billion dollars to CIT and have agreed to provide the money by the end of July 1, 2009. CIT has pledged approximately $15 billion dollars in assets as collateral against the loan, which makes this transaction attractive for the bondholders.
CIT plans to transfer some of its customers to its subsidiary bank in Utah. If the deal fails, the Salt Lake City bank is at risk to fail, also.
The Security and Exchange Commission has warned CIT that if it does not secure the money, it will have to begin bankruptcy proceedings. With this move, the economy is beginning to show signs of a recovery. Experts warn that recovery will be slow, however.
Many retailers may be at risk for bankruptcy if CIT fails to receive the money. “The retail sector could be especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.”
July 21, 2009
Photo by Bluex Image, Courtesy of Stock Exchange
CIT bank received
a pledge of $3 billion from its shareholders to keep it from filing for bankruptcy. It will use $1 billion of it to pay a debt due in August. Although this is a fortunate event, it may still not be enough to keep it the red and the FDIC has indicated it may close the bank down.
The U. S. conference Board has expressed optimism that the economy is showing signs of recovery and this may boost consumer confidence. S & P 500 quarterly earnings are 15% higher than expected.
Across the seas, China has been reporting since March that they are showing signs of recovery as many of the factories are reopening and no more migrant workers are returning home.