After several months of trying to save the company to avoid bankruptcy, CIT Group finally filed for bankruptcy. The action put an end to an ongoing saga, as the filed for a prepackaged bankruptcy plan that would give them court protection and be under control of its debtors.
Under the plan, the company expects to reduce its total debt to about $10 billion hoping to significantly reduce its liquidity needs over the next three years and enhance its capital ratios and accelerate return to profitability.
The company has been known as one of the biggest player in the factoring industry – which is a form of debt financing used by businesses that are unable to secure loans or credit lines. Under the business, a company would be allowed to sell their receivables at a discount in return for cash. In the factoring method, a number of apparel makers deploy it as a way to hold them over until retailers pay.
One of the biggest questions right now is perhaps how will the problem impact the retail sector most especially the holiday season is fast approaching. As retailers no longer have an effective means of allowing working capital to rotate quick in the business, would it hamper United States Economy as lesser spending from consumers are expected?
It appears that the worst-case scenario has passed. As for now, CIT would just be added to the growing list of tax payers agonies. Having too much debt combined with very low credit ratings just wouldn’t help no matter who the CEO is. As for the bondholders, they are absorbing the biggest hit.
But there is still some good news after all, their subsidiaries – CIT Bank and Utah State Bank will continue its operations and would not be included in the filings. Do you think someone would continue to trust these two?