CIT Group

CIT Group, Inc. is a global commercial finance company that provides a comprehensive set of financial products and advisory services to the middle market, founded in 1908. The company has 200+ offices in 50+ countries. CIT is included in the Fortune 500 and is a leading participant in vendor financing, factoring, equipment and transportation financing, Small Business Administration loans, and asset-based lending. The company does business with more than 80% of the Fortune 1000, and lends to a million small and medium businesses.^[3] It was a part of the S&P 500 Index, was replaced by Red Hat at the close of trading July 24, 2009.^[4]

The company has its headquarters in New York City, and employs more than 7,300 people in locations throughout North America, Europe, Latin America, and Asia Pacific. The company's name is an abbreviation of an early corporate name, Commercial Investment Trust.

In 2008, CIT Group became a bank holding company in order to qualify for, and ultimately receive, $2.3 billion in Troubled Asset Relief Program (TARP) funds.^[11] It declared Chapter 11 bankruptcy on November 1, 2009, and with the consent of its bondholders proposed to quickly emerge from bankruptcy court proceedings.

On July 1, 2008, CIT Group announced that it would be selling its home lending division to Lone Star Funds for $1.5 billion in cash in addition to the $4.4 billion in debt the company held. CIT said it would concentrate on its commercial pursuits due to the decline in housing and mortgage markets of the past year. CIT also planned to sell their manufactured housing portfolio Vanderbilt Mortgage and Finance Inc. for approximately $300 million, although it held a value of $470 million.^[10]

On July 13, 2009, Bloomberg TV reported that CIT was asking for FDIC loan guarantees.

On July 15, 2009 the common stock of CIT was halted on the NYSE during trading hours with "News Pending". At 6:03 p.m. a press release was issued on the company's website stating that talks of a government bailout were unlikely. The company had been advised that there was "no appreciable likelihood of additional government support being provided over the near term."^[12] CIT announced that it believed it was unlikely that it would receive further funding from the federal government, and CIT Group came very close to declaring bankruptcy.^[13][14][15] It was rescued in a US$3 billion deal on 19 July 2009, via an agreement with the bondholders group, which included Pacific Investment Management Company (PIMCO) and some other top CIT holders.^[16] CIT said it planned a comprehensive restructuring of its liabilities.^[17]

On September 30, 2009, in its continuing struggle to avoid bankruptcy, CIT Group was reported to be in negotiations with Citigroup Inc., Barclays Capital, and its bondholders to secure rescue financing to comply with its filing to find a plan “acceptable” to the majority of a bondholder steering committee that provided it with the emergency cash by Oct. 1.^[18]

On Sunday, November 1, 2009, CIT Group filed for Chapter 11 bankruptcy protection.^[19][20][21] It filed in the United States Bankruptcy Court for the Southern District of New York along with CIT Group Funding Company of Delaware LLC.^[22]

On December 10, 2009, CIT satisfied all of the conditions required to consummate the prepackaged Plan of Reorganization (the "Plan"). The distribution of CIT's new debt and equity securities took place in accordance with the Company's confirmed Plan and the new common stock commenced trading on the New York Stock Exchange (NYSE) under the symbol "CIT." All previously issued and outstanding common stock and preferred stock was cancelled.^[23]

Turnaround at Thain's CIT hinges on Fed OK

By Aaron Elstein
October 6, 2010

It's early yet, but we just might have the beginnings of a nice turnaround story at CIT Group, the lender to small and midsized businesses that sank into bankruptcy last year.

On Tuesday, the company announced plans to redeem $860 million in debt that carried a hefty interest rate of 10.25%. It was the second time in two weeks that the company said it would reduce the high-cost debt lingering from its bankruptcy and would help further Chief Executive John Thain's goal to lower the company's cost of capital.

Ok, enough about the numbers. The much more interesting story concerns Mr. Thain, who, you may recall, last year left Merrill Lynch after he was ousted by Bank of America, which then leaked damaging news that he had a small fortune spent to renovate his office. Mr. Thain, who spent 24 years at Goldman Sachs and rose to president of the firm, came to Merrill in late 2007 with a reputation as a fix-it sort of guy after helping modernize the New York Stock Exchange. It didn't work out with Merrill, but if he can turn around CIT, he'll restore his reputation and then some.

He's got quite a bit of hard work ahead of him. The previous CEO--another career Wall Street guy named Jeffrey Peek--left behind a mess. The big problem: CIT, like a lot of Wall Street firms that didn't survive in 2008, funded itself using ultra-short-term loans. When CIT got cut off from that market, its fate was sealed. Mr. Thain's challenge is to create a more stable funding base for CIT by building up a base of deposits it can lend out.

The best way to get those deposits would to buy them by acquiring another bank. Deal-making is in Mr. Thain's bones from his days at Goldman and the NYSE, whose transformation he kick-started just a year after joining by acquiring electronic stock exchange Archipelago in 2005. And there sure are a lot of troubled banks just looking to be bought out nowadays.

Trouble is, CIT's hands are tied.

In August 2009, two months before it filed for bankruptcy, the Federal Reserve Bank of New York identified problems with CIT's credit risk management practices and accounting. That's a big problem, considering the Fed would have to approve any acquisition CIT, and the "agreement" between the New York Fed and the company is still in effect. CIT said in its latest quarterly filing that it continues "to work with our regulators in a constructive manner" to resolve its problems. That must be fun.

In other words, there's only so much that Mr. Thain can make happen at CIT until the Fed says it can happen. There aren't many starker examples of how power has shifted on Wall Street than this one.

CIT Group Names Ex-Merrill CEO and Former Sachs COO Thain as Chairman, CEO

Associated Press
February 7, 2010

Former Merrill Lynch CEO John Thain, who brokered the investment bank's controversial sale to Bank of America, is taking over as chairman and CEO of CIT Group as the commercial lender continues to restructure its business following a brief stay in bankruptcy protection last year.

CIT Group Inc., one of the nation's largest lenders to small and mid-sized businesses, said Thain will take the helm immediately. The 54-year-old replaces acting interim CEO Peter J. Tobin, who will remain on CIT's board. Tobin had stepped in while CIT searched for a permanent replacement for Jeffrey Peek, who retired as chairman and CEO on Jan. 15.

As chairman and CEO of Merrill Lynch, Thain's deal to sell Merrill was considered a lifesaving move for the company at the height of the financial crisis. But he then came under fire for having paid out $3.6 billion in bonuses to Merrill employees just before the deal closed, and for spending more than $1 million to redecorate his office at Merrill, despite its massive losses.

Thain resigned as head of global wealth management at the combined company shortly after the deal was completed and later repaid the bank for the renovations. He has defended the acquisition, saying Merrill was transparent with Bank of America about the company's losses and bonuses before the purchase closed. New York Attorney General Andrew Cuomo's office filed civil charges last week against Bank of America, its former CEO Ken Lewis and former Chief Financial Officer Joe Price, saying they misled investors about the Merrill Lynch deal.

Prior to Merrill, Thain served as CEO of the New York Stock Exchange and president and chief operating officer of Goldman Sachs. A CIT spokesman said Thain's role at the NYSE, where he modernized the exchange and better positioned it to compete in the global marketplace, was one of the accomplishments that most impressed CIT's board.

"John is a well respected financial services executive and proven leader who is uniquely qualified to lead CIT at this critical stage," said CIT lead director John Ryan in a statement. "We have the utmost confidence in John and are pleased to welcome him to CIT."

Jeff Aronson, co-founder and managing principal of CIT investor Centerbridge Partners, said his firm fully supports CIT's decision.

Thain's appointment brings stability to the top ranks of a company which has seen a series of management departures since it emerged Dec. 10 from a quick stay in bankruptcy court.

President and Chief Operating Officer Alexander T. Mason, 58, is leaving the company Feb. 26. Chief Financial Officer Joseph Leone has said he plans to retire in April. CIT Group also last month announced the resignation of two directors and the appointment of three outsiders as it completed a shift to a more independent board to guide its restructuring effort.

CIT Group, which lends to more than 3,000 businesses including supermarkets and department stores, was forced into bankruptcy after failing to raise cash to pay off outstanding debt. The more than 100-year-old company also was hammered by mounting loan losses as more customers fell behind on repaying loans during the recession.

Common stock holders and the government lost their investments when CIT filed for bankruptcy protection. The Treasury Department had given CIT $2.3 billion in loans as part of its $700 billion financial bailout plan.

The company moved through bankruptcy in just six weeks because its key bondholders had already approved a reorganization plan. It was able to cut its total debt by $10.5 billion and deferred debt maturities for three years. The same month it emerged from Chapter 11 it made plans to start lending again, committing to fund $500 million in new government-guaranteed loans to small business customers in 2010.

CIT Group declined to disclose details of Thain's compensation package.

Thain inherits a company that in addition to its lending activities is the third-largest railcar leasing firm in the U.S. and the third-largest in airline financing globally, according to its Web site.

"Much has been accomplished in recent months to position CIT for renewed success," Thain said in a statement. "We will build upon this progress and work even harder to support small and mid-market businesses. CIT can and will serve an important role in the recovery of the U.S. economy and the creation of jobs."

CIT Names Board Member to Interim CEO

International Business Times
January 20, 2010

Commercial lender CIT Group Inc (CIT.N) on Tuesday named longtime director Peter Tobin as acting chief executive as the company's board looks for a permanent successor to Jeffrey Peek, who retired as chairman and CEO on Friday.

Tobin, 64, will continue to serve as a director while the board seeks to fill the CEO post as quickly as possible, CIT said in a statement.

The lender, which recently emerged from bankruptcy, was said by sources familiar with the matter to be courting former Merrill Lynch & Co (MERDL.PK) Chief Executive John Thain for its top job.

A deal to hire Thain could also include Nelson Chai, who worked with Thain at Merrill and also NYSE Euronext (NYX.N), one of the sources said last week.

Thain resigned under pressure from Bank of America last January, a few weeks after the Charlotte, North Carolina-based bank bought Merrill. He told Reuters last year he was looking for a job in private equity or with a public company.

A CIT spokesman had no comment on Tuesday on whether Thain was still in the running, or if the company had identified a preferred candidate.

Peter J. Tobin:

Mr. Tobin served as special assistant to the President of St. John's University from September 2003 until his retirement on May 31, 2005. Previously, he was Dean of the Peter J. Tobin College of Business at St. John's University from August 1998 to September 2003.

From March 1996 to December 1997, Mr. Tobin was Chief Financial Officer of The Chase Manhattan Corporation. From January 1992 to March 1996, he served as Chief Financial Officer of Chemical Banking Corporation, a predecessor of The Chase Manhattan Corporation, and prior to that he served in a number of executive positions at Manufacturers Hanover Corporation, a predecessor of Chemical Banking Corporation.

Mr. Tobin is a director of AXA Financial (formerly The Equitable Companies Incorporated), Alliance Capital Management, L.P., a subsidiary of AXA Financial that manages mutual funds, PA Consulting Group and H.W. Wilson, a publishing company.

Mr. Tobin has been a CIT director since July 2002.

CIT Appoints Former Merrill Lynch & JPMorgan Chase Executive as Interim CEO

New York Times
January 19, 2010

The CIT Group, the small to mid-market lender, said late Tuesday that it has appointed a director, Peter J. Tobin, as its interim chief executive as it looks for a permanent new leader.

Mr. Tobin, 64, will replace Jeffrey M. Peek, who left the firm on Friday. CIT is currently interviewing a number of candidates for its next chief executive; among them, according to news reports, is John A. Thain, the former chief executive of Merrill Lynch.

He has been a CIT director since 2002, and previously served on the firm’s board from 1984 to 2001. During his time on CIT’s board, he had at points chaired its audit committee and risk management committee and served as lead director.

Mr. Tobin, spent most of his career at Chase Manhattan (now JPMorgan Chase), including as chief financial officer of Chase and predecessor Chemical Banking Corporation.

From 1998 until 2005, he also worked in various roles at St. John’s University, including dean of the Peter J. Tobin College of Business and special assistant in corporate relations and development to the school’s president.

CIT in Talks to Hire Thain, Former No.2 Man at Goldman Sachs, as CEO, Says Sources

Reuters
January 12, 2010

CIT Group Inc (CIT.N), a commercial lender that recently emerged from bankruptcy, has talked to former Merrill Lynch & Co Inc Chief Executive John Thain about him taking the company's reins, according to two people familiar with the matter.

A deal to hire Thain could also include Nelson Chai, who worked with Thain at Merrill and also NYSE Euronext (NYX.N), one of the people said.

Thain would follow another former Merrill Lynch executive, Jeff Peek, who retires as CIT's CEO on Jan. 15.

The search for a replacement for Peek is progressing, a CIT spokesman said. He declined to comment on the report, citing a company policy not to comment on market rumor or speculation.

A spokesman for Thain also declined comment.

Thain was fired from Bank of America last January, a few weeks after the Charlotte, North Carolina-based bank bought Merrill. He told Reuters in November he was looking for a job in private equity or with a public company. The MIT and Harvard-educated executive joined Merrill at the end of 2007 from the New York Stock Exchange. Before heading to the NYSE, Thain spent nearly a quarter century at Goldman Sachs Group Inc (GS.N), where he became No. 2.

COMEBACK

CIT is looking to reestablish itself as a lender to small and medium-sized businesses after a disastrous foray into subprime lending earlier this decade.

The lender filed one of the five largest bankruptcies in U.S. history on Nov. 1 after a debt exchange offer failed. One of the biggest financial sector victims of the credit crisis, in December CIT became the only major company in the sector to emerge from bankruptcy.

CIT is looking to move some of its best businesses, including vendor financing and factoring, to its bank, where it can fund them with deposits.

Any new chief executive will need to work hard and negotiate with regulators to put this plan into effect, one person familiar with the business said.

Separately, the company named three new directors on Tuesday, completing a planned reshuffle of its board.

CIT shares closed down 21 cents, less than 1 percent, at $33.55.

CIT Group CFO Retires, 4 New Directors Named

Associated Press
December 22, 2009

CIT Group Inc. on Tuesday said its chief financial officer is retiring, and noted that it is closer to filling out its new board.

The commercial lender, which emerged from bankruptcy protection on Dec. 10, said CFO Joseph Leone will retire April 30. A replacement has not yet been named.

Mr. Leone, 56, has been with the company for 25 years. He took over as finance chief in 1995 after serving as executive vice president of one of CIT's units.

CIT will also need to name a new chief executive soon, as Chairman and CEO Jeffrey Peek is due to retire at the end of the year.

CIT also named four new members to its board, moving closer to the goal identified in a regulatory filing Friday of having a new 13-member board.

The new board members are: Michael Embler, 45, formerly chief investment officer of Franklin Mutual Advisers; Arthur Newman, 66, a senior managing director of Blackstone Group LP; Daniel Ninivaggi, 45, of counsel to the law firm of Winston & Strawn LLP; and R. Brad Oates, 56, chairman and managing partner of Stone Advisors LP.

These additions bring the board to 11 directors, plus Mr. Peek. The new board will include the new CEO, five members from the old board and seven independent directors nominated by CIT's debtholders. The new board will select a successor to Mr. Peek, who in mid-October announced his retirement.

CIT, one of the nation's largest lenders to small and mid-sized businesses, was forced into bankruptcy after failing to raise cash to pay off outstanding debt. CIT was also hammered by mounting loan losses as more customers fell behind on repaying loans during the recession. It moved through bankruptcy in just six weeks because its key bondholders had already approved a plan to reorganize the company.

Shares of CIT added 31 cents to $28.54 in morning trading.

Billionaire Icahn Reports Holding 6.1% Stake in New CIT Shares

Bloomberg
December 21, 2009

Billionaire investor Carl Icahn, who battled with CIT Group Inc.’s management before agreeing to support a prepackaged bankruptcy, reported holding a stake equal to almost 6.1 percent of shares outstanding.

Icahn, who said he was CIT’s largest bondholder before its bankruptcy, reported a stake of 12.1 million shares in a Securities and Exchange Commission filing today. New York-based CIT exited bankruptcy this month and its new stock began trading Dec. 10, less than two months after filing to reorganize.

Bankruptcy helped the company trim more than $10 billion in debt and extend bond maturities for three years. Icahn had made a competing offer, then supported CIT’s prepackaged bankruptcy after the lender agreed to corporate-governance changes. CIT collapsed amid losses tied to subprime lending and was unable to gain funding from the commercial-paper market.

CIT shares rose 73 cents, or 2.7 percent, to $28.23 today in New York Stock Exchange composite trading. CIT spokesman Curt Ritter wasn’t immediately able to confirm if Icahn was the largest shareholder.

CIT Group Files for Chapter 11 Bankruptcy Protection

Bloomberg
November 1, 2009

CIT Group Inc., a 101-year-old commercial lender, filed for bankruptcy with financing from investor Carl Icahn after the credit crunch dried up its funding and a U.S. bailout and debt exchange offer failed.

New York-based CIT listed $71 billion in assets and $64.9 billion in debt in a Chapter 11 filing in U.S. Bankruptcy Court for the Southern District of New York. None of its operating subsidiaries, including CIT Bank, a Utah-based bank, were included in the filing, and operations will proceed as normal, CIT said in a statement.

The bankruptcy “will allow CIT to continue to provide funding to our small business and middle-market customers,” said Chief Executive Officer Jeffrey Peek in a statement.

CIT has $1 billion from Icahn to fund operations while it reorganizes. The credit line, to be drawn on until Dec. 31, will be a so-called debtor-in-possession loan.

The company had asked bondholders to exchange $30 billion in debt for new securities and equity. Icahn made a competing offer. After CIT’s offer expired at midnight on Oct. 29, the company said it was tallying 150,000 ballots.

The company’s debt holders had rejected the exchange offer, with 90 percent of holders who voted opting for the prepackaged bankruptcy plan. The plan will cut $10 billion in debt, and CIT seeks “quick confirmation” of its plan, CIT Group said in a statement.

CIT said it would try to emerge from bankruptcy two months from the date of its filing.

The case is In re CIT Group Inc., 09-16565; U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

Goldman Trims CIT Loan to $2.125 Billion

October 30, 2009

* CIT pays $285 million in fees to Goldman
* Counting votes on restructuring plan, debt exchange
* Shares fall almost 12 percent to 84 cents in pre-market

Reuters - Goldman Sachs Group plans to trim the rescue loan it arranged for CIT Group Inc by $875 million to $2.125 billion, CIT said on Friday.

CIT, which has been struggling to finance itself amid the credit crunch and recession, said it is effectively removing the part of the loan it hadn't taken, according to a filing with regulators.

The commercial lender paid $285 million as a fee to Goldman for reducing the loan and it has posted an initial $250 million in collateral, according to the filing. In return, Goldman has agreed it will not terminate the loan should CIT file for bankruptcy.

Goldman had been seeking to amend the loan since earlier this month, according to reports. The bank had been due a payment of $1 billion if CIT filed for bankruptcy, a source told Reuters.

CIT is likely to file for bankruptcy in the coming days, analysts have said.

If struggling U.S. commercial lender CIT Group Inc were to collapse it would be a "drastic mistake" as the small businesses that rely on it would have few alternate sources of funding... "I have a great fear of the collapse of CIT and that people don't understand the ramifications of what that can be. I think it would be a very, very drastic mistake in this country to allow CIT to go under." - Lynn Tilton, chief executive of distressed investment firm Patriarch Partners, CIT Collapse Would Be a Mess, Turnaround Experts Say, October 1, 2009

The lender has offered investors two options: an exchange of bonds for new securities and equity, avoiding a bankruptcy filing; approval of a reorganization plan before the company files for bankruptcy.

Separately, in a statement on Friday, CIT said an independent balloting company is counting more than 150,000 ballots from investors on the exchange and restructuring plan, which expired on Thursday.

The company did not say how long this process might take.

CIT shares fell almost 12 percent to 84 cents in pre-market trading.

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CIT Group Receives $1 Billion Loan from Icahn

AP
October 30, 2009

Commercial lender CIT Group Inc. said Friday that billionaire investor and bondholder Carl Icahn agreed to support the company's restructuring plan amid reports CIT may soon file for bankruptcy protection.

Icahn also agreed to provide CIT with a $1 billion line of credit.

Icahn has been an outspoken critic in recent weeks of New York-based CIT Group's plan to restructure its debt in an effort to avoid collapse. CIT, one of the largest lenders to small and midsize businesses, has been trying to reduce its near-term debt burden by $5.7 billion.

"Our ability to secure an incremental $1 billion committed line of credit from Mr. Icahn's affiliates supports our restructuring plan and helps ensure our ability to continue to serve our existing small business and middle market customers," CIT spokesman Curt Ritter said.

On Wednesday, CIT received a $4.5 billion line of credit from lenders and other bondholders who had already provided it with $3 billion in financing over the summer.

Thursday marked the last day most CIT debtholders could agree to exchange their bonds for new debt that matures later and stock. Results of that exchange have not yet been released.

The company said earlier Friday it was still tabulating the votes.

Even if bondholders approve the debt restructuring plan, the company could still file for bankruptcy protection. At the same time they were asked to agree to swap their debt, bondholders were also asked to approve a prepackaged bankruptcy plan.

The Wall Street Journal, citing unidentified people, said the exchange offer likely failed and the company would file for bankruptcy protection as soon as Sunday night.

Ritter declined to comment on the likelihood of a bankruptcy filing.

A prepackaged bankruptcy, which would have the support of major bondholders, would speed up the process of restructuring CIT's debt and allow it to return to normal operations faster than a traditional bankruptcy filing.

CIT said Icahn's $1 billion loan would be available even if it files for bankruptcy.

Icahn had railed against the company's plan over the past week, calling it unfair to small bondholders. Earlier in the week, he offered to buy CIT's debt for 60 cents on the dollar from debtholders who agreed to reject the exchange and prepackaged bankruptcy offer.

Icahn said in a statement Friday afternoon that because he changed his stance on the offer, he will buy CIT's debt from bondholders regardless of their vote.

The agreement between Icahn and CIT came after the company agreed to make some changes to its offer, Icahn said. One of his biggest complaints about the plan was it would keep the board intact. On Wednesday, CIT said it would accelerate changes to its board of directors if it files for bankruptcy.

A failure by CIT could hurt an economy already struggling to recover, especially the retail sector. The company is a short-term financier to 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.

CIT has been struggling as its costs to borrow money have eclipsed the income it generates from lending money. CIT lost its primary source of funding last year when the commercial paper market nearly collapsed at the peak of the credit crisis and has yet to recover.

Shares of CIT dropped 23 cents, or 24.2 percent, to close at 72 cents in Friday trading.

CIT Moves Closer to Pre-Packaged Bankruptcy Approval

Reuters
October 30, 2009

CIT Group has met at least one of the hurdles necessary to file for a prepackaged bankruptcy, sources said, bringing the commercial lender one step closer to the fast bankruptcy process it is seeking to lower its liabilities and get back to health.

Holders of about 90 percent of its unsecured bonds have approved the prepackaged bankruptcy, two sources familiar with the matter said late Friday. The company needed two-thirds approval.

But the company is still counting ballots to see if half of the voting bondholders have approved the deal, a necessary condition, according to a person familiar with the matter.

The 101-year old company is widely expected to clear that hurdle, and could file for bankruptcy as soon as this weekend.

CIT had been working hard to win bondholder support for its plan to restructure, and earlier Friday announced key agreements with creditors, including support from Carl Icahn, who had previously been the main opponent to the company's plans.

CIT also announced an agreement with Goldman Sachs Group that would reduce a $3 billion credit line to $2.125 billion but, critically, keep the line open during a bankruptcy.

"It looks like everything is pointing to a prepack," said Adam Steer, an analyst at CreditSights in New York. "Their best option is to turn off the lights and work their balance sheet down. It's pretty clear at this point."

The prepackaged bankruptcy plan involves giving bondholders new debt worth 70 pct of the face value of their old debt, plus giving them an ownership stake in the company equal to about 92.5 percent of the common stock.

Current preferred shareholders, including the government's $2.33 billion paid to CIT under the Troubled Asset Relief Program, will be converted into 5 percent of the company's common stock. Current common shareholders will get 2.5 percent of the new company.

CIT warned last week that if investors did not support its restructuring efforts, it could end up filing for bankruptcy without a plan for how to fix itself. Exiting bankruptcy could take a long time and destroy much of the company, CIT's management said in a presentation.

"We're all glad this is behind us and that we can now consummate this transaction and hopefully make bondholders some more money," said Jeff Werbalowsky, chief executive of Houlihan Lokey, the adviser to CIT bondholders.

"The company did the right thing in putting this behind us, and that's where this needs to be for a quick and successful restructuring."

CIT had sought to get support from bondholders to exchange their old debt for new securities, or to agree to a pre-packaged bankruptcy. The votes were due by the end of Thursday, October 29.

The debt exchange was widely seen as doomed to fail, given the number of competing interests involved.

CIT was once the largest lender to small and medium sized business in the United States. It said in a presentation earlier this month that it hopes to move key operations, such as vendor financing and small business lending, into its bank unit. That bank unit can then fund lending through deposit borrowing.

CIT Presses Bondholders to Agree to Restructuring

Reuters
October 23, 2009

CIT Group Inc warned bond holders that if they failed to exchange their debt or approve a prepackaged bankruptcy, the commercial finance company -- and its debt investors' returns -- could suffer mightily.

The company said that, without a debt exchange or an orderly bankruptcy, the company would have to liquidate, an expensive process that could leave unsecured bondholders with somewhere between 6 cents and 37 cents on the dollar. These bonds were trading just above 60 cents on the dollar earlier on Friday.

"Let's be clear. A free-fall bankruptcy will ... result in a lower recovery for today's unsecured bondholder," CIT Chairman and Chief Executive Jeffrey Peek said in a pre- recorded webcast presentation.

CIT's restructuring plans were almost immediately slammed by billionaire investor Carl Icahn, who snapped up CIT debt in the past few months to become what he says is the company's largest bondholder.

New York-based CIT is trying to restructure its debt through getting debt holders to exchange their debt, or to agree to a pre-packaged bankruptcy. It is also looking to boost a $3 billion secured credit facility by another $4.5 billion.

Once the company restructures its liabilities, it can try to move some of its businesses into its regulated bank subsidiary and fund them with deposits instead of bonds.

Icahn said a better plan is to try to move businesses into the bank within nine months. If that does not happen, the company should wind itself down and pay out proceeds to debt holders. Icahn said that, if the company pays off its debt with money from maturing assets, his bonds could be worth 80 cents to 85 cents on the dollar.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case," said Icahn, who made much of his fortune over the years buying controlling stakes in distressed companies.

Icahn has been increasingly active in companies in bankruptcy court this year. This summer, he was approved by a court to provide part of the bankruptcy financing for auto parts maker Lear Corp, a company he had once had a large equity position in and tried to acquire. He also received approval from a bankruptcy court to buy Tropicana Casino and Resort in Atlantic City.

Time is running out for CIT. The company has until Oct. 29 to restructure its debt or get approval for a prepackaged bankruptcy. In the beginning of November, about $1 billion of its debt matures...

CIT makes loans mostly to small and medium sized businesses and also has a large factoring business that services the retail sector.

Goldman Sachs Could Earn $1 Billion from Potential CIT Group Bankruptcy

Before You Invest
October 6, 2009

Goldman Sachs will earn a $1 billion payout if commercial lender CIT Group goes into bankruptcy, according to media reports.The payment would be due under the terms ...

Goldman Sachs will earn a $1 billion payout if commercial lender CIT Group goes into bankruptcy, according to media reports.

The payment would be due under the terms of the $3 billion rescue deal it agreed with CIT in 2008.

CIT saw the value of its stock plummet to less than $2 per share on last week’s New York Stock Exchange.

Last year, it was cut off from its traditional source of funding, the commercial paper market, forcing it into the credit facility deal with Goldman Sachs.

The US government also bought more than $2 billion of CIT shares as part of the Troubled Asset Relief Program in December 2008.

But in July the company failed to secure a second US bailout after asking for a further $3 billion in rescue financing.

CIT chief executive officer Jeffrey Peek has asked bondholders to swap unsecured obligations for new secured debt and preferred shares, in an attempt to stave off bankruptcy.

Goldman Sachs, CIT in Talks to Amend Loan Terms

Reuters
October 5, 2009

Goldman Sachs Group Inc said on Monday that it is in talks to amend the terms of a $3 billion loan to CIT Group Inc, the Wall Street Journal reported.

The investment bank is expected to receive about $1 billion if commercial lender CIT were to file for bankruptcy, the Wall Street Journal said. This is a point of contention as the company battles to raise additional funds as part of its broader restructuring plan, the Journal said.

CIT is studying several options for the loan from Goldman Sachs, one of which is trimming the $1 billion payment, the Journal said, citing a person familiar with the situation.

"Goldman Sachs is working with CIT and its creditors to enable it to continue to use the facility, which we believe gives it an attractive cost of funding, particularly relative to the other financing that has been provided to CIT at less attractive levels," Goldman Sachs said in a press release on its website.

Goldman spokesman Michael DuVally declined to comment further.

CIT spokesman Curt Ritter declined to comment on the report.

Goldman extended $3 billion in funding to CIT in June 2008, according to regulatory filings. The 20-year contract, which was set as the credit markets froze, calls for CIT to pay Goldman 2.85 percent of the maximum amount lent. That translates to about $85.5 million a year for the first 10 years of the agreement, the Journal said, and CIT would be required to pay $1 billion if it were to file for Chapter 11 bankruptcy.

Citing a Goldman Sachs internal memo, the Wall Street Journal the financing for CIT required the bank to "establish long-term funding" of its own, which it is obligated to pay even if the CIT facility is paid off early or CIT files for bankruptcy. The $1 billion payment is "designed to cover Goldman Sachs in such an event," according to the memo.

CIT, a century-old company that is one of the largest lenders to thousands of small and medium-size businesses, pays roughly 10 percent interest on its latest loan. Goldman's loan, made before CIT acknowledged massive financial problems, charges about 3 percent interest, the Journal said.

CIT's Collateral Damage

Georgia small businesses brace for the potential loss of a major funding lifeline.

Business to Business
July 24, 2009

The teetering fortunes of troubled commercial lender CIT Group are setting off increasingly urgent alarms for Georgia retailers, and even an 11th hour deal to at least temporarily forestall bankruptcy is bringing scant reassurance for stores and their suppliers waiting for another shoe to drop on their bruised industry.

"I think if CIT goes 'bye-bye,' there are going to be tons of independent (retailers) going 'bye-bye' and several manufacturers going 'bye-bye' too," warns Jeffrey Gardner, owner of Cornerstone Furniture in Atlanta. "CIT is a big part of this business."

"My guess is there are 10,000 to 20,000 retailers in Georgia who would be affected by this," agrees John Heavener, president of the Georgia Retail Association. "And it's not just retail. When sales started to drop, state revenue dropped precipitously. The states and counties now are having budget crunches. Almost 19 percent of workers in Georgia work in retail. It's a link effect to all other parts of the economy."

Strapped by shrinking access to capital, the 101-year old CIT Group called for help last year and received a $2.3 billion federal infusion. But in mid-July, its second appeal for aid was turned down in a move seen as a sign the Obama administration has reached its limits for corporate bailouts. That brought speculation that the company would file for bankruptcy protection in a matter of days.

Appeals from the retail industry have declared the company too important to fail. "I think it would be very, very damaging," Heavener cautions.On July 20, CIT announced it has reached a $3 billion agreement with its bondholders to keep the company afloat, and CEO Jeffrey Peek promised "a restructuring plan that will better position our company for the long term." But observers say the company's long-term outlook is far from hopeful, with CIT needs a daunting $7 billion just to address debts coming due over the next year. "It's a stopgap," grants Heavener. "Everything is stopgap now."

Who is CIT?

Long a source of funding for small and midsized businesses, CIT today stands out most significantly for its role as a financial intermediary between retailers and suppliers in a practice known as "factoring" or "factor financing." When placing an order, retailers often lack the cash to pay for merchandise up front, but manufacturers and vendors need that money for costs such as raw materials, rent, utilities or employees salaries. As a "factor," CIT provides short-term financing to bridge that gap by buying the accounts receivable from the supplier and subsequently taking payment from the retailer.

"A lot of times, they won't even ship you. They won't ship you unless you factor through something like CIT," explains Jimmy Huff, vice president of Atlanta-based Huff Furniture, who factors with CIT for five of his manufacturers.

It's a highly specialized niche, one in which the National Retail Federation says CIT is almost unique, especially now that the other major name in the field, GMAC, has moved away from factoring in the midst its own government bailout. The American Apparel & Footwear association estimates that CIT does 60 percent of the factoring for the U.S. apparel and footwear industries. "CIT is really the one big player," says J. Craig Shearman, vice president of governmental affairs with the National Retail Federation. "There are a bunch of small players, but it's doubtful even whether all of them together are big enough to pick up the slack."

With a 56-year history, Huff believes his company has plenty of credit to weather a possible demise of CIT, but he worries about smaller, entrepreneurial companies with little cash on hand and limited credit, especially in today's lean lending environment. "It probably will affect some of the newer businesses, the startups. They aren't well known. They are needing to get that credit so they can keep doing business."

Domino effect

"It would be just disastrous, another bad thing to happen to the economy" says Diane, not her real name, whose family business in Atlanta factors through CIT Group. "I just think people are not aware of how big, how important they are to the small-business economy."

Diane asked that neither she, nor her company be identified, demonstrating a concern that Shearman says has become common. "Most of the retailers we have spoken to have actually asked us not to use their names because they don't want anything associated with a particular company. They don't want people to think 'oh, there's going to be a shortage of sweaters at such and such a place this year.'"

But shortage is exactly what some industry representatives are predicting if CIT is suddenly removed from the equation, creating a hole in Georgia's supply chain just in time for the industry's critical Christmas shopping season. If already strained retailers must suddenly come up with their own cash, or search the current tight credit markets for alternate sources of credit to buy inventory, Heavener says they will likely simply buy less inventory. "Certainly people would have thinner shelves than normal for the holidays, probably less stock and probably increased prices because of that. We're going to see some retailers not even be open for the holidays – not only not have inventory, but not even be open."

"It's like prepaying for your house," explains Sean Ergle, owner of Area Urban Interiors in Atlanta, who has become all too familiar with the perils of retailing without factoring support. He was cut off by CIT in a payment dispute a year ago and has had to come up with other ways to pay his vendors since. "Retailers cannot survive delivering a prepaid product unless they have tons of capital. We started our business with a couple of thousand dollars and charged up the credit cards, but the debt ... it's a vicious cycle."

It makes it difficult sometimes to explain time lines," Ergle points out. "Normally we can sell something and have it in four to six weeks. So I have to explain to the customer why it's not here. When the customer pays a thousand dollars for something, they want it when they want it."

It's a scenario Camille Sheppard is eager to avoid. Owner of Atlanta apparel supplier Camille and Company, she estimates that fully half of her business is factored through CIT group and she's trying to make contingency plans. "We're going to talk to our banks, talk to our credit cards, see if we can get extensions. We're going to talk to our vendors and see if we can work with them directly."

Georgia retail advocates say they're holding on to cautious hope that, given the newest arrangement with its bondholders, CIT can shore up its finances enough to keep the merchandise flowing, especially as businesses try to strike deals for the holiday season. Says Heavener: "I think that we have a reprieve that may give us some breathing space. I think a long-term solution has yet to be found."

"It's definitely not over," echoes Shearman, who sees the deal buying time for the government to reconsider stepping in. The next critical point for CIT is a tender offer in which it plans to buy back $1 billion of its debt for 82.5 cents on the dollar by August 17. If enough bondholders agree, a major deadline will be defused. If not, the company could be flirting with bankruptcy again in a matter of weeks, and reports on Friday have emerged about breaking up the company to avoid bankruptcy.

"Nothing has been decided yet," says Sheppard. "I don't know if I'm going to have a problem going forward for the fall or not. Right now we're in limbo."

Local Retailers Make Provisions in Case of CIT Bankruptcy

Philadephia Inquirer
July 21, 2009

Devising backup plans as CIT Group teetered on the brink of bankruptcy made for aggravating times last week, says Urban Outfitters chief financial officer John Kyees.

So it was a relief yesterday when the New York financial institution - a critical player in retailing, whose loans in the "factoring" market are important for merchandise deliveries - apparently averted bankruptcy with emergency funding.

Now, even if CIT's finances unravel down the road, Philadelphia-based Urban Outfitters has protected itself.

"We're well-prepared," Kyees said, "because we're identifying all the vendors that are factored by CIT and working with our merchants."

Hustle was the order of business among retail executives alarmed by the news that CIT's financial distress might lead to a Chapter 11 bankruptcy declaration. Officials at Urban Outfitters and Boscov's Department Store L.L.C., based in Reading, worked the phones to ensure that even if CIT were to go under they would continue receiving merchandise.

"We're sending letters to all of them asking, if something were to happen to CIT, what is their plan," said Albert Boscov, the retail chain's chief executive.

At Urban Outfitters, "we called our folks at Wachovia, who are now Wells [Fargo], and said, 'How would you feel about factoring if CIT fell apart on some of our vendors?' and they said, 'No question,' " said Kyees, whose company is cash-rich despite the economic malaise. "Our balance sheet is pristine."

Beyond its role as a commercial lender, CIT Group is the nation's largest issuer of short-term loans in the factoring market.

When smaller and midsized manufacturers and vendors are ready to ship an order to a retail chain, they turn to a so-called factor to pay them in full for the shipment.

That gives retailers up to three months to review the order before paying for the goods. Manufacturers, meanwhile, get the cash and can move forward.

The factor charges interest, and, like a bank, also takes full responsibility for collecting payment from the retailer. If a retailer goes bankrupt or can't pay for what it received, the factor gets stiffed - not the vendor.

Because of that, the factor also evaluates a retailer's creditworthiness before agreeing to front money for a shipment - something that helps keep midsize vendors from getting bruised.

"The small manufacturer, they don't have a big credit department," said Boscov. "They don't have analysis. So to them, getting someone who says the day you ship, 'We're going to give you the money, and you don't take the risk,' is a tremendous asset to small manufacturers."

If CIT were to disappear from a field it now dominates, thousands of vendors and manufacturers would be left scrambling to find another short-term lender such as a bank - an intense task in a tight credit market.

Cash-strapped vendors also could demand full payment at time of delivery - a tactic more often employed when a beleaguered retail company is no longer deemed worthy of credit.

"Very few retailers will pay up front, to make sure they get the goods and the goods are in the right quantity and so forth," Boscov said. "So it's a real problem." His stores buy from 350 vendors and manufacturers who use CIT as a factor.

Urban orders merchandise from 140 vendors that use CIT as a factor, mostly for goods shipped to its 266 Anthropologie and Urban Outfitters stores, Kyees said.

Neither retailer has reported delivery problems so far.

In the case of Boscov's, CIT also is one of four lenders holding a slice of a $200 million loan that financed the chain's emergence from bankruptcy last year. Boscov said the other lenders would cover CIT's loan obligations if necessary.

Were CIT to fail, it could potentially disrupt back-to-school and holiday shipments from vendors such as "the $50 million-a-year T-shirt company rather than one of these big companies like Jones [Apparel] or Liz Claiborne," said Wharton retailing expert Stephen J. Hoch.

But with word of CIT's temporary reprieve, through a $3 billion deal with major bondholders, such fears have receded a bit.

"Better that it get sorted out now," Hoch said, "than . . . crunch time."

Palo Alto Software: Small and Medium Businesses Getting Short Shrift… Again

Palo Alto Software's Notes
July 21, 2009

The private funding of CIT Group this week highlights once more how small- and medium-sized businesses, the backbone of the day-to-day American economy, are getting short shrift from the federal bailout and economic recovery programs.

CIT Group, Inc. is one of the nation’s prominent lenders, supporting more than 1 million small- and medium-size businesses, including some 2,000 vendors providing some 300,000 retail stores with merchandise. During the financial meltdown CIT continued to provide loans and financing to keep American small businesses running when the major banks hoarded their emergency bailout funds, and severely curtailed or ceased providing loans and financing to small businesses altogether. Now, faced with possible bankruptcy, CIT is about to secure a rescue loan from its existing bondholders.

Isn’t this how these things have been going all along?

The big super-corporations get bail-out loans, but local community small businesses can’t get bank lines-of-credit or short-term bridge loans to stay in business.

The big mortgage lenders get a helping hand as a reward for their bad decisions, but at the same time small businesses are closing, and their now-unemployed workers and owners lose their homes through mortgage foreclosure.

The CEOs and financial wizards who precipitated the crisis are squabbling over salary and bonus packages larger than some communities’ entire annual budgets, yet unemployment is at its highest rate in a century.

Some of the huge manufacturing industries, which employ less that 20% of American workers, get the big bailouts; meanwhile local, smaller companies, employing the vast majority of us, who provide us all with our daily product and service needs, have to resort to bootstrap financing to stay in business.

And now this. One of the few financial institutions that has continued to support American small- and medium-sized businesses is having to bootstrap-like finance itself, having been denied similar emergency financial assistance by the federal government. And there is no guarantee that the loan from current bondholders will be enough. As lack of financial support programs forces more local businesses to fail, the liquidity squeeze tightens on CIT. If CIT fails, then more local companies will be forced out of business. A bad downward spiral. In her What if CIT Group fails? WashingtonTimes.com post, Candice Choi looks at the implications. Other analysts fear a CIT failure will have a disastrous, major ripple effect throughout the entire retail economy.

If the economic recovery is going to happen anytime soon, the government, the top-level financial institutions, the investors and the holders of the wealth of this country are going to have to stop giving our small businesses short shrift.