CIT Group Dodges Bankruptcy

CIT Group Inc., the lending force that makes the apparel and retail industry go round, skirted a brush with bankruptcy after it successfully completed a tender offer for $1 billion in senior notes due on Aug. 17.

CIT said 59.81 percent of the total $1 billion in notes were tendered. The company paid $875 for every $1,000 in senior notes tendered, justifying the discount price by saying it would be better to get a few dollars less than get nothing at all if the corporation went bankrupt and were unable to repay any of its debt. The company originally offered to pay $800 to $825 for every $1,000 tendered.

“The completion of this tender offer is another important milestone as the company continues to make progress on the development and execution of a comprehensive restructuring plan,” the company said in a statement.

CIT has been in financial hot water for several months, just floating above disaster that constantly threatens to spill over to the apparel and retail realm. CIT is the largest factor in the apparel industry, financing approximately 60 percent of all transactions made between clothing manufacturers and retailers.

Basically, factors buy apparel manufacturers’ accounts receivables at a discount, making their money by collecting the full bill from the retailer. That way, apparel makers don’t worry about collecting their debt and get short-term financing to make payroll and buy materials needed to cut and sew their next wave of garments.

Over the years, as factors have consolidated, CIT has become the major player in the factoring game. In July, CIT fell short of funds and turned to the federal government for a loan after already receiving a $2.3 billion federal bailout late last year. But the Obama administration denied the lender’s second request for funds.

So on July 29, CIT entered into an amended credit agreement with a group of its major bondholders that loaned the corporation $3 billion in emergency funds. However, CIT needs an additional $7 billion to pay off its debts maturing during the next year.

With all this financial turmoil going on, CIT on Aug. 17 filed its second-quarter report, posting a $1.62 billion loss, or $4.30 a share, compared with a year-earlier loss of $2.07 billion, or $7.88 a share.

In addition, CIT agreed that by Aug. 28, it would report to the Federal Reserve Bank of New York its plans for maintaining sufficient capital and to come up with a business plan in 75 days that includes budgets for 2009 and 2010.—Deborah Belgum