CIT Group, the largest factoring company involved with the soft goods
industry, is facing a liquidity crisis. The Wall Street Journal
reported that CIT has $2.7 billion in debt that comes due this year,
and said some analysts have speculated the company may have to file for
bankruptcy protection.
Reports indicate the company is in talks with federal regulators about
participating in the Federal Deposit Insurance Corp.'s Temporary
Liquidity Guarantee Program. If the FDIC does OK participation, it
would allow CIT to issue government-based bonds to raise capital at a
lower cost, the Associated Press reported. But the government has
made it clear that a possible bankruptcy by CIT is not seen as a
systemic risk to the financial system, the Wall Street Journal
reported,. Other lenders including JPMorgan Chase & Co or Deutsche
Bank AG can take on many of the same loans in which CIT specializes.
In particular, CIT's factoring business is vital to the retail industry
and unlikely to disappear. Factors buy the right to collect on the
invoice of a retailer or other company at a discount to the value of
the invoice. Then the factor assumes the risk that the invoice will not
be paid. Still, there could be some pain to the company's smallest
clients in the retail industry.
“It's a difficult lending environment, and those small retailers that
have seen sales slow to a minimum already may have a hard time securing
lending sources until spending picks up,” Melinda Crump, a spokeswoman
for Sageworks Inc, which tracks and collates the financials of
thousands of privately held U.S. companies, told the Associated Press.
Changes in financing options could force small businesses into tough
choices such as having to fund a portion of their growth from cash flow
until other sources of lending were to become available, she said.
