CIT Group Scrambling to Avoid Bankruptcy

Fox Business
July 16, 2009

...If CIT fails, it would be the first major financial institution that the government allowed to fail since the collapse of Lehman Brothers late last year. The company is a key lender to more than one million businesses, with major clients like Dunkin Donuts and N.J.-based communications company Avaya.

Small and mid-sized companies also make up a large part of CIT’s clientele, as do retailers and retail manufacturers. There has been much speculation as to how the failure of CIT Group will impact small businesses, and on Thursday, the National Retail Federation sent a letter to Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chairwoman Sheila Bair, defending the lender’s importance to the retail sector. The letter requested that the Administration aid the struggling lender, with the NRF President and CEO calling CIT “too important to the retail industry to be allowed to fail.”

“A failure of CIT would impact thousands of retailers and, consequently, the consumer spending that makes up two-thirds of our nation’s economy,” said NRF President and CEO Tracy Mullin. “That cannot be allowed to happen at a time when retailers are already struggling to survive the national recession.”

Mullin said the failure of CIT could lead to a disappearance of crucial short-term financing resulting in a shortage of merchandise for many retailers this holiday season.

Meanwhile, ratings agencies continue to downgrade the company’s debt. On Thursday, Standard & Poors downgraded CIT Group to CC from CCC+, while Fitch downgraded the company to a ‘C’ from a ‘BB-’, saying it was highly likely that the company would file bankruptcy in the “very near term”. DBRS downgraded the company’s rating to ‘CCC’ from ‘BB’.