CIT Files for Chapter 11

On November 2, 2009, CIT Group, Inc., a leading provider of financing to small businesses and middle market companies, filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  Click here for a copy of the CIT Voluntary Petition. 

Only two of CIT’s business units filed for bankruptcy, and CIT has stated that none of its operating subsidiaries, including CIT Bank, its business segments or its international business operations, are part of the bankruptcy filing and it expects business as usual will continue throughout the reorganization process.  CIT also states that it has the liquidity to serve its customers. CIT listed $71 billion in assets and $64.9 billion in liabilities.

CIT is over 100 years old, and provides significant capital to small and middle market businesses.  CIT is huge, really huge:  its customers employ more than 90 million employees, it’s the leading provider of financing to the retail sector and to women-, minority- and veteran-owned small businesses.  An outright failure of CIT could have significant adverse effects on the US economy, which is currently in a very fragile state at best. 

So what’s the probable impact of CIT’s bankruptcy filing?  Probably none, assuming the company is able to confirm its prepack plan without any major hitches. Click here for a copy of the CIT Plan (and Disclosure Statement).  As to retailers, many of them likely have already order product for the holiday season and so are not dependant on immediate financing from CIT (nb:  restocking could be an issue).  The markets are becoming more liquid, and other companies could step up to the plate to provide financing to the middle market, like Wells Fargo.

There are those who think businesses will move away from CIT to others, but the likelihood is that businesses will continue to use CIT as long as CIT has is liquid enough to satisfy its customers needs.  However, the real test will be not the next few weeks, but rather the weeks and months after the bankruptcy.  Will CIT’s prepack plan truly put CIT on better footing for the immediate future?  Only time will tell.

The hearing on the adequacy of the disclosure statement and confirmation of the plan is scheduled for December 8, 2009.  Here is a copy of the Scheduling Order, and for other bankruptcy information, click http://www.kccllc.net/citgroup.

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