On November 1, 2009, CIT Group (no relation to Citigroup) filed Ch. 11 bankruptcy. Per
CNNMoney:
CIT Group Inc., one of the nation's leading funders of small and medium-sized businesses, filed for the fifth largest bankruptcy by assets in U.S. history Sunday as part of a reorganization plan that has the support of an overwhelming majority of debtholders.
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In the bankruptcy filing, CIT said it had $71 billion in assets and $64.9 billion in liabilities. Only Lehman Brothers, Washington Mutual, Worldcom and General Motors had more in assets when they filed for protection.
Abstract of CIT statements:
At the time of filing:
* CIT was the largest provider of factoring loans to retailer store suppliers.
* CIT was the third-largest lessor for each of rail cars, and aircraft.
Ch.11 filing statistics:
* The Ch.11 filing was triggered by failure to get bondholder approval for a U.S.$5.9 billion debt exchange offer.
* Net reduction of total debt under the initial bankruptcy plan is projected to be ~U.S.$10 billion.
* CIT has filed motions to get court approval to pay employees, vendors, and other creditors in full.
* CIT plans to cancel all existing common and preferred stock on completion of bankruptcy -- shafting the U.S. government, as U.S.$2.3 billion in funding was obtained from the TARP (Troubled Assets Relief Program).
CIT said an additional $4.5 billion in credit obtained Wednesday will allow it to meet the needs of its clients and continue day-to-day operations during the bankruptcy approval process. The company said it has also obtained an additional $1 billion in credit to provide supplemental liquidity.
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CIT sought a second federal bailout in July but was rejected. It was then able to get a $3 billion loan from bondholders in order to stave off bankruptcy -- at least for a little while.
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On Friday, it reached an agreement under which Carl Icahn, a prominent investor who had opposed the company's efforts to reorganize. will now support the firm's restructuring. Icahn's hedge fund firm, Icahn Capital LP, will provide CIT with a $1 billion credit line.
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Separately, the company said in a filing with the Securities and Exchange Commission on Friday that it had struck an agreement with Goldman Sachs (GS, Fortune 500) to change the terms of a loan it had originally sought from the Wall Street firm in June.
In reducing the size of the loan to $2.125 billion from $3 billion, CIT Group will pay Goldman a termination fee of $285 million and will post $250 million in collateral.
In return, Goldman agreed not to terminate the credit facility in the event of a CIT bankruptcy. Prior to Friday's announcement, Goldman Sachs was poised to collect $1 billion when CIT filed for bankruptcy, according to reports.
In more general
commentary:
CIT Group was historically a major player in two key markets: lending to new and expanding businesses, especially franchises, and providing short-term financing for retail suppliers. On the retail side, CIT has stayed active, but its traditional lending has come to a near standstill.
Last year, CIT Group made more than 1,200 loans through the Small Business Administration's primary lending program, totaling $771 million. But in the 2009 fiscal year, which ended Sept. 30, its loan volume fell 88%. CIT Group made just 142 loans, totaling $105 million.
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.... Lending to small businesses has been cut in half this year, according to Bob Coleman, editor of the Coleman Report, a trade publication that monitors small business lending trends.
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Factor financing is popular in the retail field, where margins are paper-thin and manufacturers can't wait around for their customers to pay up. Selling accounts receivable to a factor, typically for 70 to 90 cents on the dollar, gives suppliers an immediate cash infusion and lets them pass on the administrative work of collecting payments from customers.
The National Retail Federation estimates that CIT providers factoring services to around 2,000 manufacturers, which in turn supply products to some 300,000 retail locations. For those suppliers, "there aren't a whole lot of other alternatives," said J. Craig Shearman, the NRF's vice president for government affairs. "There are a number of smaller firms that do factor financing, but not enough to pick up the slack if CIT were to drop out of factor financing all together."
CIT's factoring volume has dropped this year, largely in response to the weak retail market. In the first half of this year, it had a transaction volume of $16.5 billion, down 20% from the same period in 2008.
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.... One silver lining: CIT's bankruptcy happened late enough that it won't disrupt the critical holiday shopping season, when retailers typically rake in 25% to 50% of their entire year's revenue.
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CIT says its bankruptcy proceedings won't affect the company's day-to-day business. ....
CIT's bankruptcy followed months of negotiations with the government and with potential investors for a desperately needed capital infusion. The company's public struggles took a toll: The week of July 13, when CIT appeared poised to go bankrupt, customers drew down $700 million against CIT's financing lines, twice the normal transaction volume.
Also that week, Microsoft (MSFT, Fortune 500) and tool retailer franchise Snap-On gave CIT a no-confidence vote, cancelling financing programs they had in place with the company.
CIT said it has the capital it needs to continue its day-to-day operations. Through the bankruptcy reorganization, the company hopes to shed around $10 billion in debt and position itself for a return to profitability. A judge will hear its case on Dec. 8.
On November 8, 2009, small business credit card lender Advanta filed Ch. 11 bankruptcy. Per
CNNMoney (dateline Nov. 9 2009):
Advanta's lending arm, Advanta Bank Corp., was not included in Sunday's Chapter 11 filing, and will continue operating as usual. While Advanta stopped making new loans earlier this year, it is continuing to collect on $2.7 billion due from some 360,000 customers.
Advanta's bankruptcy comes just one week after another top small business lender, CIT Group, filed its own bankruptcy petition. Both companies were hit with a sharp rise in defaults as the recession deepened. Advanta's default rate reached 24% in September, up from 11% one year ago, according to the company's financial filings.
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The company sparked an outcry from customers in September 2008 when it abruptly hiked interest rates for its cards to 25% and higher. In May, it announced it would shut down all of its credit card accounts for future charges.
Advanta hopes to emerge from bankruptcy with its business intact, but more bad news is looming. Advanta Bank Corp.'s capital is falling short of regulatory requirements, and is likely to be turned over to the Federal Deposit Insurance Corp. for receivership, Advanta warned this week.
