United States-based small business lender CIT, which also has a small Australian finance operation, appears to be on the verge of being rescued from bankruptcy.
The company, which provides funding for millions of small and medium businesses, is trying to secure a $US3 billion loan from investors in a last-ditched attempt to avoid entering Chapter 11 bankruptcy.
CIT has been unsuccessful in appealing for a government bailout, although the company did receive $US2.3 billion of funding from the US Government’s bank bailout fund earlier this year.
But while The New York Times is reporting that CIT was “close to a deal” overnight, there is some speculation that the company may still collapse if bondholders and investors can be persuaded to inject further capital into the company.
Given CIT has $US75 billion of assets, it would be one of the biggest ever collapses in corporate history.
Exactly how CIT’s Australian operations would be affected by any collapse is unclear.
According to Peter Drennan, a financial analyst at East & Partners who follows the SME sector, CIT’s operations in Australia are very small and focus on lease financing and cashflow lending.
Drennan expects the collapse of CIT is likely to mean one of the big four banks starts sniffing around their customer base.
“They’re quite small. If they do fall over there might be some interest from some of the bigger players in buying their assets.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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