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CIT: Habemus Bankruptcy!
By Marc Tracy
Well, small-business lender CIT's game of chicken with its lenders--in which it has been trying to coax more loans out of them by threatening a prepackaged bankruptcy filing--appears over, with a CIT victory, of sorts: the company filed one of the largest Chapter 11s in history, and expects to emerge from bankruptcy protection, this time in the ownership mainly of its current creditors, before the end of the year. (That $4.5 billion loan it secured last week remains operative. Indeed, the company also accepted a $1 billion loan from famed financier Carl Icahn over the weekend, which should serve to neutralize him as a threat to the company's plans.) The lender's creditors expressed support for the plan late last night.
The big losers in this are CIT's current stakeholders, which includes, well, you: the federal government invested $2.3 billion in the company as part of last fall's bailout; most if not all of that stake will be wiped out by the end of the Chapter 11 process.
But among the big winners might surprise you: none other than those small businesses that in the past looked to CIT as its lender. In the short run, while a few businesses that rely on CIT for factoring may find themselves in deep trouble, most will actually be saved by CIT's ability to continue to operate through its bankruptcy. And all of these companies, needless to say, are better off than if CIT faced outright insolvency, including a Chapter 7.
More importantly, in the long run, the New York Times hypothesizes, "It also means the end of CIT’s efforts to transcend its roots as a sleepy financier of retailers, restaurants and manufacturers." This is great! We never wanted CIT to transcend itself! We want it to be a "sleepy financier"! If the credit boom of this past decade found the banks--and, microcosmically, CIT--ignoring small business for the big ones, then perhaps the post-recession economy will witness a refocusing on those "sleepy" businesses and the relatively safe borrowing they do.
Comments (0)November 2, 2009 10:06 AM
