Blog: Leonie BarrieIs CIT really back from the brink?

Leonie Barrie | 21 July 2009

You could almost hear the industry’s collective sigh of relief as CIT Group was brought back from the brink of failure yesterday by agreeing a $3bn loan with some of its main bondholders.

After all, as the largest factoring firm to the apparel sector – responsible for an estimated 60% of factoring in the US apparel and footwear industry – there were fears that its demise would cause major disruptions in the apparel supply chain, leaving retailers with a shortage of merchandise during the crucial back-to-school and holiday seasons, and their suppliers facing cost cuts, layoffs or shut downs.

But it seems this is far from the end of the story, and may simply be a stay of execution. According to Bloomberg, the lender is “right on the precipice” with its “existing liquidity” still insufficient to repay $1bn of notes maturing next month.

Breakingviews also points out that its survival is being hampered by the rescuers themselves after they extracted tough terms from the desperate borrower.

So perhaps other retailers should think about following the example set by Urban Outfitters, which told vendors it was willing to lend to them instead if CIT Group collapsed. Determined not to disrupt the flow of products to its stores, the debt-free retailer said it would shift some cash from its investments to factor invoices in need.

But it’s not just a philanthropic gesture: chief financial officer John Kyees notes that the money is currently in low-interest accounts – and “could probably pick up some income” if used to factor invoices instead.


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