It’s official that after receiving an emergency loan of $4.5 million dollars just last week, CIT Group, a major bank loan supplier to over a million small to mid-sized retailers and suppliers particularly focused in the fashion industry, declared bankruptcy on Sunday, November 1st.
“With the overwhelming support of its debt-holders, the board of directors voted to proceed with the prepackaged plan of reorganization for CIT Group Inc and a subsidiary that will restructure the company’s debt and streamline its capital structure,” the company said in a statement.
“Under the plan, CIT expects to reduce total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability.”
CIT Group chairman and chief executive Jeffrey Peek said the plan would allow its subsidiaries, including CIT Bank, to continue operations through the reorganization. Overall, CIT’s bankruptcy is one of the largest in the United States, with total liabilities of $65 billion to toal assets of $71 billion.
So what does this mean? As we reported starting back in July when the news broke that CIT Group Inc. was about to run out of money, some estimate said it controlled 60% of the apparel factoring market. On July 15th, the New York Stock Exchange even halted trading on shares of CIT.
To trace this story, in a combined effort, the National Retail Federation, American Apparel & Footwear Association, Council of Fashion Designers of America, and the National Counsel of Textile Organizations, among others, sent letters to Congress last summer asking for bailout funds for CIT. However CIT was denied a bailout because it was deemed by the decision-makers doling out the bank bailout funds that CIT was not too big to fail. What this meant for suppliers and retailers in July and August was a major panic that they would soon have to shut their doors, which in essence would be detrimental to the fashion and retail industry in the United States.
CIT supplies what’s called “factors” or loans, many of them to businesses in fashion. Factoring are loans that keeps businesses afloat while waiting for sales. So basically, stores make orders and pay off these orders as sales of the items begin, but in the meantime, they operate often on loans from CIT. CIT also supplies money to the suppliers to float during the time of making goods before they’re sold. Many in the fashion industry depend on CIT to keep cash flow flowing, so if they’re gone, then businesses across the nation would start to close (even faster than many already are).
News of CIT’s troubles hit Reuters, CNN, AP, Bloomberg, Wall Street Journal, and of course local fashion titles such as Apparel News which kept a running tab on the situation over the summer. Then on July 20, CIT Group announced that is had reached an agreement, albeit short-term, with many of its bondholders for $3 billion. In a statement released by CIT, the money was “intended to provide CIT with liquidity necessary to ensure that its important base to small and middle market customers continues to have access to credit.” However many of these businesses questioned whether it would be enough to solve a major national problem.
Clearly, it wasn’t afterall. Stay tuned for updates.
Uniqlo’s new collection from Jil Sander
Meanwhile, Uniqlo continues its winning streak, especially due to the success of its Jil Sanders J line collection for Fall, with profits from last month up a whopping 36% as reported by Fast Retailing, Inc. More news coming soon. Meanwhile, check-out more about Uniqlo and its success story here.