CIT Group's Rescue Plan Good For VARs

CIT Group's $3 billion rescue by bondholders is good news for the channel, even though the company has decreased its technology financing in recent years, said several channel financing executives.

The $3 billion infusion, announced Monday, is likely to help keep the struggling lender out of bankruptcy, at least for now, as it looks to restructure debt.

The financing agreement could preserve the government's $2.33 billion investment in CIT by the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December, Reuters said.

CIT lends money to thousands of small businesses, sometimes as a third party to another lender. Research firm CreditSights said CIT has about $40 billion of long-term debt, according to Reuters. About $1.1 billion comes due in August, and $2.5 billion by year-end. CIT has lost close to $3.3 billion since the end of 2007.

The company's bankruptcy could have had a devastating effect, said John Marks, managing director of Coach Capital, a Deerfield, Ill.-based leasing company, and former CEO of JDMI, a Chicago-area VAR.

"That was going to be a huge hit. CIT was the backbone for a lot of leasing and financial programs to the channel. I'm sure if you asked 10 people who CIT is, several would not have heard of them. But if you talk to distributors like Ingram Micro or Tech Data offering leasing, CIT was there," Marks said.

The importance of CIT's survival is underscored by the increased difficulty of getting end users approved for financing in this economy. The more choices VARs have, the better, Marks said.

"The approval process is more difficult than ever. If you're putting your cards into one person's leasing business, you're going to be disappointed to find you have a lot of disapprovals," said Marks, whose Coach Capital was founded in 2002 as a leasing vehicle for JDMI but is now looking to finance leasing through other VARs.

"We have multiple funding sources. If one or two people say no, the next two people might say yes. [Leasing] is like distribution -- the faster you can get product out and collect the money, the better you are," Marks said.

Tech Data struck a leasing relationship with CIT in February that is still in place, but it hasn't been helped by CIT's well-documented struggles. Tech Data serves more as an agent to CIT, which works directly with solution providers to help finance end-user leases, said Scott Tillesen, director of SMB credit at Tech Data.

"We help CIT promote themselves in the industry. Their engagement has been somewhat modest. They're out there doing business, but I don't have a good feel for how much that would be. It would seem to be somewhat modest," Tillesen said.

Tech Data also offers leasing through IBM and Hewlett-Packard's financing arms, but those programs are still tilted toward leasing solutions led by each vendor's respective products, Tillesen said. Overall, the leasing environment hasn't changed much since late last year when VARs said it had become increasingly difficult to find financing for their customers.

"What I hear from leasing companies is that they're not qualifying as many end users as they used to. They've tightened up on their requirements," Tillesen said. "Things have reached a level and hung at that level, both in terms of sales and financing. We're just kind of waiting it out now."

Tillesen echoes Marks' statements that it pays for solution providers to strike leasing relationships with multiple lenders because you have a greater chance of someone approving a deal.

"It's good for end users to have options, certainly in this industry. If CIT's interest is to still provide end-user financing of technology products, we'd rather see them around than not. It's always good to have options. It keeps rates competitive," Tillesen said. "Whether $3 billion is enough to afford them time to work out something more permanent, I don't know." CIT Group is trying to move away from lending and into banking in order to qualify for certain government programs, Tillesen said. Such programs are not accomplished overnight, he said.

"But clearly, if people are taking a chance on another $3 billion, smart people think it's worth betting on," he said.

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