CIT woes may disrupt retailers holiday plans

By Brad Dorfman - Analysis

CHICAGO (Reuters) - The possible bankruptcy of lender CIT Group Inc comes at a bad time for manufacturers of clothing, shoes and other goods sold by retailers as they gear up for their busiest times of the year.

The timing is "terrible," said Al Ferrara, partner in retail and consumer products business of consulting firm BDO Seidman LLC. "Retailers now are basically gearing up for the back-to-school and the fall season."

CIT, which lends to hundreds of thousands of small and mid-sized U.S. businesses, said late Wednesday that government bailout talks had ended, a move that could set the stage for bankruptcy.

For the retail industry, CIT's key function is as a factor, buying receivables -- or the right to receive money owed by retailers -- from suppliers at a discount so that those suppliers continue to have working capital. CIT gets paid back when the retailers sell the goods, typically in 60 to 90 days.

"CIT is one of the very few large, sophisticated factors out there for retail suppliers," said Mallory Duncan, general counsel for the National Retail Federation, an industry trade group. "If you remove CIT, then an awful lot of suppliers do not have access to the operating cash they need to supply the next round of goods to retailers."

The American Apparel & Footwear Association estimates that about 60 percent of the industry's factoring is done by CIT.

While it would never be a good time for suppliers to lose that capital, the winter holiday season tends to be the largest selling season for retailers, with back-to-school the next biggest, so the disruption of credit comes at a bad time.

"TURNING TO PANIC"