CIT Appoints New Directors
Bank holding company CIT Group Inc., which emerged from a brief Chapter 11 bankruptcy on December 10, 2009, has appointed four new independent directors to help oversee its restructuring strategy. CIT’s board now consists of 11 independent directors and Chairman/CEO Jeffrey M. Peek.
The new directors are Michael J. Embler, former CIO of Franklin Mutual Advisers LLC; Arthur B. Newman, senior mManaging director and co-head of the Restructuring and Reorganization Advisory Group at Blackstone Group L.P., Daniel A. Ninavaggi, Of Counsel to Winston & Strawn LLP; and R. Brad Oates, chairman and managing partner of Stone Advisors, LP. Once fully reconstituted, CIT’s new board will consist of 13 directors, including seven new independent directors identified by CIT’s creditors and recommended by the Nominating and Governance Committee of CIT’s board, five incumbent independent directors and a new CEO. In addition, Vice Chairman/CFO Joseph M. Leone will retire effective April 30, 2010.
CIT Exits Chapter 11 Bankruptcy
On December 10, 2009, CIT commenced trading shares on the New York Stock Exchange under the symbol “CIT.” This confirmed that CIT has emerged from bankruptcy having satisfied all of the conditions required to consummate its prepackaged plan of reorganization, which was accepted by the U.S. Bankruptcy Court, Southern District of New York in a December 8, 2009 hearing. Implementation of the plan reduces CIT’s total debt by approximately $10.5 billion while deferring debt maturities for three years and also enhances capital ratios to levels that exceed regulatory requirements. CIT says it will now focus on business restructuring and the execution of a smooth leadership transition.
CIT Starts Lending Again
Upon emergence, CIT said it would commit $500 million to support its Small Business Lending group to fund government guaranteed loans in Small Business Administration (SBA) lending programs, as well as $1 billion in funding for its vendor financing operating segment. These commitments are in addition to a previously announced $1 billion worth of funding for CIT’s trade finance operating segment, which provides factoring services for mid-sized businesses. CIT finances numerous small and middle-market businesses and is the largest factoring company in the U.S. The company says it also expects to generate new loans across its other lending and leasing platforms in 2010.
CIT Files Chapter 11 in November 2009
CIT initially filed its bankruptcy reorganization plan on Sunday, November 1, 2009 and presented it to Judge Allan L. Gropper of the U.S. Bankruptcy Court, Southern District of New Yorkon Tuesday, November 3, 2009, under case number 09-16565.
According to the Post Chronicle, Judge Gropper said he was putting the hearing on a fast track, as CIT hoped to emerge from bankruptcy by the end of this year. In addition, the judge approved a number of “first day” motions filed by CIT, including requests to immediately borrow $125 million from Bank of America and to obtain necessary court relief in order to pay employees and critical vendors. Under the proposed plan of reorganization, all existing common and preferred stock will be canceled upon emergence.
CIT Bankruptcy Backgrounder
CIT added $4.5 billion to an existing $3 billion credit facility on October 28, 2009. CIT said these funds, supplemented by cash from existing operations, would allow it to meet clients’ needs and to satisfy customary obligations associated with the daily operation of its businesses during the confirmation process. The company said it had also secured an incremental $1 billion committed line of credit to provide supplemental liquidity as it pursued that plan. As of June 30, 2009, CIT, a Fortune 500 company, had $71 billion of finance and leasing assets and $64.9 billion of liabilities.
According to BusinessWeek, CIT was denied a second federal government bailout in July 2009 after previously receiving $2.3 billion in Troubled Asset Relief Funds (TARP). Since many manufacturers and suppliers which do business with retailers use CIT’s factoring services to finance short-term debts while they wait for retailers to pay for merchandise, the company’s bankruptcy could have a major negative impact on retailers’ ability to keep items in stock during 2010. BusinessWeek quoted an NRF spokesperson as saying the 2009 holiday shopping season should not be seriously affected by CIT’s bankruptcy filing.
Other Bankruptcies Affect U.S. Retailers
At least three other major bankruptcy filings this year have had or threaten to have a significant impact on the U.S. retail industry. General Growth Properties, Inc. (GGP) which filed for bankruptcy, along with 158 regional shopping centers it owns, in April 2009, is pursuing prompt resolution of $3 billion of secured property debt remaining to be restructured. On December 15, 2009, GGP received approval from the Bankruptcy Court in the Southern District of New York for reorganization of 87 secured mortgage loans totaling approximately $10.25 billion.
The plans of reorganization cover 194 of GGP’s debtors owning 85 regional shopping centers, 15 office properties and three community centers. Confirmation of the plans of reorganization for 26 additional debtors owning 10 properties associated with an additional $1.7 billion of secured mortgage loans has been adjourned pending satisfaction of various conditions.
With roughly 200 million square feet of retail space and 24,000+ stores across 44 states, GGP is the second-largest mall owner in the US behind Simon Property Group. It employs approximately 3,700 people directly and many more indirectly.
Automakers General Motors and Chrysler have both exited Chapter 11 bankruptcy after filing earlier this year, aided by large infusions of government funds. However, both companies are in the process of streamlining operations and dealerships, which could have a negative affect on overall retail sales and employment figures.