CIT says bankruptcy filing won't affect clients

The bankruptcy, which eliminates the value of the company’s common stock, had been anticipated for weeks. CIT received $2.3 billion last year from the U.S. government, which declined to provide any further financial support to the company.

CIT has executive offices in Livingston and about 1,000 employees in the state, according to spokesman Curt Ritter, who said CIT has 1 million customers worldwide and 26,000 commercial clients in New Jersey.

The bankruptcy filing “will allow CIT to continue to provide funding to our small-business and middle-market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey M. Peek, chairman and chief executive officer.

Many retailers rely on financing from CIT, but the bankruptcy should have little impact on the holiday season. “The products and apparel are well along in the pipeline,” said John Holub, president of the New Jersey Retail Merchants Association. The bankruptcy could affect the spring retail season, but by then, the economy may turn around and provide “more financing alternatives,” he said.

John E. McWeeney and James R. Silkensen, co-presidents of the New Jersey Bankers Association, said the reorganization could enable CIT to emerge stronger.

“The fact that they have experienced some of these challenges creates opportunities for other lenders in the market that are well positioned and well capitalized,” McWeeney said. CIT has a focus on equipment financing, and there may be opportunities for banks to get involved in that business, he added.

Michael Gallo Jr., a partner in the law firm DeCotiis, FitzPatrick, Cole & Wisler, and head of its finance group, agreed with CIT’s prediction that its customers won’t be hurt by the bankruptcy filing.

“It’s not a great thing for their customers, but it should not have any short-term effect,” Gallo said. Meanwhile, middle-market companies “are still experiencing tough underwriting standards, and capital is not as readily available as it used to be. … If [CIT] were to go away, it would have severe consequences for all types of companies”

Raymond Felton, a partner in the Woodbridge law firm Greenbaum, Rowe, Smith & Davis, said it’s a positive sign that CIT plans to emerge from bankruptcy by year’s end. He said CIT is an important commercial lender, particularly now, during the credit crunch.

“The Fortune 500 companies that deal with the major banks are probably rebounding quicker than the small- to medium-sized business,” he said. Community banks are actively lending, but many make smaller loans; companies that need to borrow $10 million to $20 million “are finding it hard to get a favorable reception.”

Rutgers Business School professor Mark Castelino said the CIT filing is a good thing: “Bankruptcy is the way the market is supposed to behave — if they can’t make money for their stockholders and they borrow too much money, they go bankrupt.”

E-mail Beth Fitzgerald at bfitzgerald@njbiz.com