Retail industry insiders explored at the Reuters Restructuring Summit this week the possible ramifications of a collapse by CIT Group. According to their opinion, if CIT Group (NYSE:CIT) were to implode it would be a “drastic mistake” as many of the lender’s clients would lose their financing options, prompting the possibility of another flurry of bankruptcies at an industry already decimated by the worst spending slump in decades.
“I have a great fear of the collapse of CIT and that people don’t understand the ramifications of what that can be,” Lynn Tilton, CEO of distressed investment firm Patriarch Partners said.
Tilton believes any collapse would result in millions of job losses at smaller U.S. companies.
“Over 80% of our workforce,” Tilton said, “lies in small and mid-size companies, and yet there is absolutely no credit available to these companies…I think it would be a very, very drastic mistake in this country to allow CIT to go under,” added Tilton. [FBN]
There is, understandably, much anxiety on the part of retailers about an interruption in the supply chain that would come about as a result of an interruption in cash flow along the value chain were CIT to implode.
The commercial lender, which is is struggling to reduce debt, raise equity, and figure out how to fund future business, is planning, according to sources close to the situation, to offer its unsecured debt holders two options: either exchange their debt voluntarily, or face a prepackaged bankruptcy.
If these options do not work, the retailers and other businesses that rely on CIT for loans, will be faced with their very business survival. What makes the situation even worst is that according to experts, in case of a CIT failure, there is unlikely to be any company out there able to fill its shoes. Meanwhile, retailers and other small businesses, who need cash flow and working capital to keep the supply chain flowing, appear to have done little to prepare for a possible CIT collapse.
“Everybody has adopted a wait-and-see attitude,” said Cory Lipoff, an executive at Hilco Merchant Resources who works with distressed retailers. “Everybody is uncertain and cautious, but nobody is taking any actions right now”. [FBN]
While CIT continues to negotiate in the shadow of bankruptcy – is vital for retailers to have sufficient cash flow and working capital to fuel continued operations. After all, business cash and cash flow is crucial. As far as CIT is concerned, its abject failure will unavoidably leave much of the rest of the industry dependent on the government’s willingness to prop them up, which unfortunately seems to have become the norm if not Wall Street’s new business model of the day.