CIT Group's Financial Woes Affecting Many Businesses

Posted on July 22, 2009

Bloomberg reports on the many types of businesses that are being affected by CIT Group's financial woes. Although CIT Group reached a last minute deal with its bondholders, the money it receives won't be enough for a permanent fix. The company received received $3 billion in financing, but still may have to file bankruptcy.
A bankruptcy or a pullback in lending by CIT, which finances about 1 million businesses, threatens to permeate industries ranging from airplanes to clothing to software. Microsoft Corp. said yesterday it terminated a vendor financing agreement with CIT, and retailer Urban Outfitters Inc. estimates 7 percent of its vendors use CIT. Boeing Co. and Airbus SAS supply jets to CIT's aircraft-leasing unit.


As part of a five-year contract with Microsoft, CIT provided financing for customers buying software, computers and services. Customers who already used CIT to pay for products will continue to get financing from the lender, Redmond, Washington-based Microsoft said yesterday in a statement.

Exxel CEO Kazazian, who has been able to pay his bills, said in an interview yesterday that CIT has restored about 70 percent of the financing it normally provides after last week telling the company it should borrow "the least amount you can live with." Exxel, which also makes tents and wetsuits, sells about 3 million sleeping bags a year, Kazazian said. The company and most of its suppliers rely on CIT for factoring, meaning they sell payments owed for goods to receive immediate funds. This short-term financing provides money to produce more orders. Retailers will typically make payments within 90 days, and the factor keeps a fee based on a percentage of the total order. Kazazian estimates it would take three to five months to move to another bank. "It's not that easy to flip a switch," he said. Kazazian said he is in talks with Wells Fargo & Co., the San Francisco- based bank that gained market share in small-business lending last quarter.
There are many other big and small businesses that will be affected. Many are looking for alternate financing, such as Urban Outfitters (which is talking to Wells Fargo to take over its financing needs) and Dunkin' Brands Inc. (whose franchisees have used CIT for 50 years).