Is CIT Relevant?

  • CIT provides financing to over 1,000,000 small and mid-sized businesses. 

 

  • CIT provides more loans than any other lender under the Small Business Administrations most popular program.

 

    CIT is the provider of capital to America's small businesses. One can argue that there are others such as GE, but no other company has the focus of CIT. Given the other bailouts, saving CIT should be a no brainer. The Wall Street Journal reports that there has not been a ground swell of public support for assistance to CIT.

 

    Ironically hasn't the public complained that the large banks aren't lending bailout dollars quickly enough to help the economy? CIT likes to make loans, they are good at making loans, and CIT is has the best infrastructure in place for getting out financing for the small businesses that can generate jobs. Importantly they are not punch drunk push-overs that make stupid loans. Their trouble emanates from the current economic contraction.

 

    The stimulus programs are not going to work unless money is put to work. CIT actually has the infrastructure in place to augment the recovery of small business in America. Here is a great opportunity to save a financial institution worth saving.

US Bankruptcies to Rise 45% in 2009

    CNNMoney.com reports credit insurer Euler Hermes ACI forecasts a 45% increase in bankruptcy filings in 2009. Banks are in danger as US business bankruptcies may be up sharply.

 

    The FDIC reports year over year charge-offs to commercial and industrial borrowers are up by $4.2 billion as of the end of the first quarter. Credit rating agency DBRS states "business bankruptcies surpassed the peak levels of the previous cycle last year, and there is little to suggest that business bankruptcies have reached their peak."

Commercial Bankruptcy Filings On The Rise

    Chelsea Emery of Reuters covers corporate bankruptcy and restructuring. On Reuters shop-talk blog, Chelsea reports that commercial bankruptcy filings in May were up sharply from the same month a year earlier. 7,514 bankruptcy petitions were filed for businesses in 2009 compared with 5,354 for May 2008.

 

 

Improve the Odds of Getting Paid - Form a Creditors' Committee

    The president of a tire company called me to discuss what to do as a result of a customer going into Chapter 11. He asked what could he do that isn’t going to require him to come up with any cash, is not going to take much time, and has the potential to be very effective?

    I responded that participation on an official creditors committee might make the difference in a satisfactory resolution with the customer that filed chapter 11. While there are no guarantees as to the outcome of a case, often I have been able to use the power of a creditors committee to significantly enhance the treatment of unsecured creditors.

    An active creditors committee has a powerful voice in a Chapter 11 case and the ear of the court. Bankruptcy Judges want to hear from the creditors’ committee on the many issues in a Chapter 11 case. Federal law provides for a seat at the negotiating table for committees. A committee’s activities include oversight of the debtor, and scrutinizing debtor’s affairs, and evaluation of the fairness and feasibility of a debtor’s actions. The bottom line is a well-run pro-active committee can create value for unsecured creditors.

    An attractive aspect of official committees is that they are usually structured so that there is no direct charge to the members for the cost of professionals that advise committees. Thus a mechanism is in place to level the playing field for creditors (or sometimes shareholders) in the negotiations that take place in formulating how a debtor will be restructured or liquidated.

    And the absence of a committee can result in the creditors getting the short end of the stick! Don’t assume that someone else is going to be looking out for creditors; it is the responsibility of the creditors to lookout for themselves – make use of this powerful tool – an Official Creditors Committee.

    I’ll write more on this soon, but for now see that a committee gets formed. Call me if you need help.
 

Will California Go Bankrupt?

    Wall Street Journal columnist John Fund thinks a federal bailout [with conditions] will be negotiated. The state's revenues are in free fall and a budget deal is not expected to be approved next week by voters.

 

    In a video posted on the Wall Street Journal website, Mr. Fund opines that the Obama administration will provide the money and California will agree to not cut spending.

Global Economic Outlook: The Baseline Scenario


MIT Professor Simon Johnson is a thought leader on the Global Economy. His blog The Baseline Scenario is a great resource for understanding today's financial crisis. Last week he presented his Global Economic Outlook to the Senate Budget Committee.

 

I'm of the opinion that The Baseline Scenario is the best place on the web to stay easily updated on the  crisis. Johnson and his 2 co-founders are stimulating conversation and making this difficult subject understandable.

Financial Bailouts - A Letter To Congressman Brian Bilbray

Dear Sir:

The goal of federally financed bailouts should only be to augment feasible plans of reorganization, not to prolong the life of businesses beyond hope.

Bailout recipients should be required to devise and execute a feasible "Plan of Reorganization" as in Chapter 11 of the Bankruptcy Code. The financing could be in 2 parts: 1) the first part can provide interim financing while a Plan of Reorganization is developed; and 2) the second part will be "Exit Financing" that should only be provided to companies that can prove a that they have a feasible Plan of Reorganization.

All of the laws to administer the process are present in the Bankruptcy Code, with the exception of any legislation needed to let the government step into the shoes of the provider of the money. The Bankruptcy Courts also provide the only forum where certain issues can be dealt with (renegotiation or cancelation of existing contracts, protection for warrantee holders, etc.).

To handout money without conditions is not fair to the taxpayers, however given the seriousness of the financial problems we are faced as a nation perhaps a structure that requires responsible action by the recipients (with a recovery for the government) makes sense.

Respectfully,

Richard Feferman, Certified Insolvency and Restructuring Advisor
Corporate Recovery Associates
3830 Valley Centre Drive, Suite 705-152
San Diego, CA 92130
Tel: (858) 792-7473
email: richard@crarecovery.com
blog: www.creditorsresource.com

 

Alternative Sources of Recovery: Lehman Brothers' Directors & Officers

 A couple of articles in the Wall Street Journal here and here are the basis for my bet that we are going see claims against Lehman's directors and officers insurance coverage. Perhaps even a fight over who is entitled to make claims against any policies. See Kimberly Melvin's article for background on D&O Policy Proceeds as Bankruptcy Estate Assets.

US Home Prices Declining at Accelerated Rate

We all know the housing bubble was inflated by easy credit and that market has become totally unhinged.


The Credit Market's issues are far from being sorted out. Certainly this is not going to be resolved in the short term. I think it is a fairy tail to believe the same abundant levels of consumer credit will return anytime soon. Money is going be more expensive and in shorter supply, hence we will have fewer dollars chasing houses. The next paragraph (and corresponding chart) shows why I think housing may be far from a bottom.


The S&P/Case-Shiller Home Price Indices are the gold standard for measuring aggregate home price fluctuations. The below chart, illustrating monthly changes in year-to-year comparisons, shows nationwide home prices falling at a faster rate each month.



Debt buyers ignore discharge and get sued. What a surprise.

Loren Steffy of the Houston Chronicle wrote an article about a couple who have filed suit against several debt buyers who apparently ignored a Judge's discharge order. Although this blog is for Creditors, the whole notion implied in Steffy's well written article is that debt buyers who are so cavalier as to have complete disregard for a Federal Bankruptcy Judge's Order have thus far not been called to account.  This is unconscionable.


This case could be a big deal. I'll keep you posted.