Loan Saves Textile Financial Services Supplier From Bankruptcy
James A. Morrissey, Washington Correspondent
CIT, a major provider of financial services for hundreds of textile and apparel manufacturers and
retailers, has received a $3 billion financial package from its major bondholders that will stave
off, at least for the time being, a threat of bankruptcy.
As one of the nation's largest providers of financial services to small and medium-sized manufacturers and retailers, CIT is a leading source of funds for factoring, a process by which manufacturers can receive immediate payments for the goods they sell without facing what could be a 30- to 90-day delay if they were to rely on payments by their customers.
When CIT ran into financial difficulties last year, it received a $2.3 billion loan from the Treasury Department, but when it recently applied for more stimulus funding, the request was turned down by Treasury. That action sent shock waves throughout the textile, apparel and retailing industries that depend on CIT for their cash flow.
The American Apparel and Footwear Association (AAFA) says as many as 60 percent of its members have done business with CIT, and Cass Johnson, president of the National Council of Textile Organizations (NCTO), said that many of his members have revolving accounts with CIT and have established long-standing ties that cannot be replaced by other entities. Johnson said the failure of CIT would force many otherwise healthy US textile companies and their suppliers to go out of business.
AAFA, NCTO, the National Textile Association and the American Manufacturing Trade Action Coalition joined some 30 other textile, apparel and retail associations in an effort to get additional government funds for CIT. They wrote Treasury Secretary Timothy F. Geithner urging him to reconsider his decision, pointing out that a CIT bankruptcy would have "severe ramifications for more than one million small and medium-sized enterprises and their suppliers as well as most of the significant retail operations in this country." Retailers warned that their supply chains would be disrupted and there likely would be bare shelves at Christmas time.
On July 20, CIT's Board of Directors announced it has entered into a $3 billion loan agreement with its major bondholders, and that it will begin a "comprehensive restructuring" to provide additional liquidity and further strengthen its capital position. Board Chairman and CEO Jeffrey M. Peek said that action will mean his company "is in a position to continue to serve our valued small business and middle market customers."
Tracy Mullin, president and CEO of the National Retail Federation, said the CIT action "comes as a great relief to the many retailers who depend on this major lender for financing. She said the news that CIT will be able to continue operations will be "one less uncertainty for retailers about to embark on the all important back-to-school and holiday shopping season."
July 21, 2009