Retailers ‘Dodge Bullet’ With CIT’s November Bankruptcy Filing Share Business Exchange
Readers: Although this is a positive bit of news for the US's retail economy, it leaves some important questions unanswered. One being why has the US Treasury Department been entirely MIA in this process, when the importance of CIT to the non-Wall Street part of the US economy is enormous? The fate of CIT is possibly much more important generally than the survival big five on Wall Street. Another might be how is letting CIT pass into bankruptcy acceptable when the wholesale rescue of AIG from collapse was not acceptable? Or how about why is allowing the big five to speculate in and driving the prices of essential commodities higher is acceptable, which BTW is essentially a privately levied tax upon the American public for which the representatives of the nation of citizens had no part in accepting as necessary? But then if you look closely, the answers are actually crystal clear in terms of which companies have the largest impact upon electoral politics and which interests are excessively represented in the various appointments within centralized banking and within the strategically important appointments with the executive branch of mis-governance. The big question is given that this reorganizing bankruptcy is well chosen for its timing, even so it is only a short term gambit. What is going to happen if the geniuses in the Treasury don't soon repudiate their patronage tethers and start paying attention to the parts of the economy which are actually productive rather wholly predatory?
By Allison Abell Schwartz
Nov. 3 (Bloomberg) -- The timing of CIT Group Inc.’s bankruptcy filing may have helped U.S. retailers avoid a holiday season with empty shelves.
“Most retailers have dodged a bullet,” said Craig Shearman, a spokesman for the National Retail Federation. “Most of the merchandise for the holiday season is at least in retailers’ distribution centers, if not already on the store shelves, and we’re not expecting to see any significant disruption for the remainder of the season.”
CIT, a 101-year-old commercial lender, filed for bankruptcy Nov. 1 to cut $10 billion in debt after the credit crunch dried up its funding and a U.S. bailout and debt exchange offer failed. CIT said it plans to exit bankruptcy next month after bondholders voted in favor of a so-called prepackaged plan. Operations will proceed as normal, CIT said in a statement.
CIT provides short-term financing, also known as factoring, to customers that manufacture and supply merchandise to U.S. retailers. The New York-based company accounts for about 70 percent of all factoring, worth about $40 billion a year, according to Ray Ecke, president of Credit Management Resource in Oakland, New Jersey.
“As long as vendors are using CIT to factor their receivables, we will pay CIT for the merchandise,” said John Kyees, chief financial officer of Philadelphia-based retailer Urban Outfitters Inc.
Urban Outfitters rose 82 cents, or 2.6 percent, to $32.20 yesterday in Nasdaq Stock Market trading.
The National Retail Federation, or NRF, is “optimistic” about CIT’s ability to continue to provide short-term financing, said Shearman, a spokesman for the Washington-based trade group. January is a merchandise-clearance month. That offers a buffer zone for vendors and retailers, and gives time for other lenders to step forward, the group said on its Web site.
San Francisco-based Wells Fargo & Co., the largest U.S. home lender, also provides factoring services.
“I assume that some of the factoring has already shifted to Wells Fargo,” Kyees said. “So the invoices we receive from our vendors will instruct us to pay Wells Fargo, and we will comply.”
CIT failed to receive federal guarantees for its bonds in July, causing concern about whether it would be able to continue to provide funding to its clients. In September, the lender asked its bondholders to swap unsecured notes for new secured debt or shares or a combination of the two. It also asked its bondholders and other owners of its debt to approve a prepackaged reorganization plan. The restructuring plan started Oct. 1.
“If CIT had stopped lending in September, it could’ve blown a hole in the retail supply chain big enough for Santa Claus to drive his sleigh through,” Shearman said.
Several retailers said they are operating business as usual and don’t expect any interruption in their merchandise flow.
“There shouldn’t be an issue,” said Robert LaPenta Jr., treasurer of Burlington Coat Factory Investments Holdings Inc. “They’ve supported us, they’ve continued to fund most of the vendors like they have in prior seasons. They made sure there was plenty of liquidity in that division.”
Some vendors relying on CIT to collect their cash had expressed concern in recent weeks about a filing leaving them shorthanded, LaPenta said. “There was some minor noise, but it really didn’t move the needle much,” he said yesterday in a telephone interview. The Burlington, New Jersey-based retailer operates 442 stores.
Dunkin’ Brands Inc., the Canton, Massachusetts-based owner of the Dunkin Donuts and Baskin-Robbins chains, doesn’t expect the CIT filing to affect its stores. CIT is one of the lenders used by Dunkin’ Brands franchisees seeking loans to remodel their stores.
Meet Customers’ Demand
“CIT’s bankruptcy filing in no way affects our stores, their ability to grow or our ability to meet consumer demand,” said Andrew Mastrangelo, a spokesman for the company.
The only possible impact on the holidays from CIT’s filing could be with restocking, Shearman said.
“At this point, it is unclear what impact CIT’s situation may have, if any, on our vendors or other partners,” Eric Hausman, a spokesman for Minneapolis-based retailer Target Corp., said yesterday in an e-mail. “But we are continuing to monitor the situation to assess any potential impact to Target.”
CIT will continue to provide funding to its small business and middle-market customers, Chief Executive Officer Jeffrey Peek said Nov. 1 in a statement. CIT has $1 billion from investor Carl Icahn to fund operations while it reorganizes. None of CIT’s operating subsidiaries were included in the bankruptcy filing.
“We’ll continue to monitor the situation,” Ginger Reeder, a spokeswoman for Neiman Marcus Group Inc. in Dallas, said yesterday in an e-mail.
The case is In re CIT Group Inc., 09-16565, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
To contact the reporter on this story: Allison Abell Schwartz in New York at email@example.com.
Last Updated: November 3, 2009 00:01 EST