US-based SME lender CIT files for bankruptcy, Australian division not affected

US lending giant CIT, one of the country’s biggest lenders to small and medium companies, has filed for bankruptcy protection as its struggles desperately to restructure its debt and continue operations.

However, CIT’s Australian management have moved to assure customers that operations will continue as normal.

CIT’s bankruptcy filings show the company has $US71 billion out on loan to its customers, which include hundreds of thousands of SMEs.

But the company is struggling under a debt load of almost $US65 billon. The move to enter bankruptcy protection and restructure its debt is part of a deal with bondholders that will see debt reduced by about $US10 billion.

Crucially for America’s legions of struggling SMEs, CIT’s operational divisions will continue to trade as usual, meaning SME should still be able to access credit from the lender.

“The decision to proceed with our plan of reorganisation will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the US economy,” Jeffrey M. Peek, CIT’s chairman and CEO said in a statement.

CIT’s management expects to have the company out of bankruptcy by the end of the year, although some analysts believe that might not be as easy as the company hopes.

Jeffrey Knopman, principal of Profit Solutions Group Inc, which works with many of the retailers CIT provides finance to helps vendors deal with retailers, told Reuters that the bankruptcy financing gives the company a bit of a reprieve, the battle to survive long-term will not be easy.

“CIT in general isn’t out of the woods yet. I think the jury’s still out on the longer term.”

Michael Stanley, a managing director at competing finance company Rosenthal & Rosenthal, told Reuters his company is already taking clients from CIT in the area of factoring (also known as invoice financing). He also says CIT may struggling to win back credibility with its borrowers.

“It’s a question of whether or not the bankruptcy restores customers’ confidence – and that’s very questionable.”

In Australia, CIT Australia managing director Keith Rodwell has assured customers that the company is not part of the bankruptcy proceedings.

However, Bloomberg has reported that CIT Australia negotiated “certain concessions” for Australian bondholders in return for them “forbearing from exercising rights associated with the bankruptcy,” according to a letter signed by Rodwell and seen by Bloomberg.

The letter also said CIT Australia “is well capitalised, profitable and cashflow positive”.