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CIT: $1 Billion of Three Remain, But Is It Enough To Fund?

July 23, 2009

The CIT crisis continues to be a cloud over the clothing industry today, as the most recent reports show that some bondholders are recommending that CIT goes into a pre-planned and out of court bankruptcy next month. As there is a series of bonds maturing next month, the main strategy right now is to offer the holders of those bond notes 82.5 cents for every dollar that they should be collecting.  Earlier this week, it was rumored that CIT could survive with the $3 billion financing if 90% of the bondholders agreed to take the discounted value for the maturing bonds.  This most recent report is essentially saying that the only difference between their taking the deal or not is a structured bankrupcy protection that may happen out of court, or a court-run bankruptcy

As this article in the Wall Street Journal reports, another critical blow to CIT is the lack of confidence that Microsoft Corp is showing in the company by announcing that they will no longer be working with CIT to offer financing solutions for customers who purchase large-ticket items:

Under the agreement, CIT processed and approved applications and assumed the risk on loans; Microsoft provided some capital and acquired an interest in the loans. Microsoft declined to say how many dollars worth of software it financed with CIT.

Microsoft has relied on financing to help boost sales during the recession. In November, the company announced a 0% financing offer on purchases up to $1 million for some of its software.

The contract termination with Microsoft reflects the latest fallout from CIT’s woes. The century-old lender narrowly avoided a bankruptcy filing this week when it obtained a $3 billion rescue loan from its bondholders. But in spite of the rescue, CIT’s ability to make new loans to its customers has been severely weakened by its inability to borrow at low interest rates.

There is an indication through various reports that more information may be available tomorrow morning. Instead of translating more financial news on this subject, we are going to see what is said tomorrow and focus on exactly what the bankruptcy of CIT will mean for those in the industry who are looking for financing.

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