For now, CIT has reopened the credit spigot and was back providing advances to clients, according to sources. But the commercial lender said in a regulatory filing Tuesday that a Chapter 11 bankruptcy filing remained a possibility if some bondholders declined to tender their holdings by Aug. 17 and agree to take less than face value for the $1 billion in debt coming due next month.
“It’s a difficult position for our clients to be in,” said Victor Wahba, a partner at accounting firm Weiser LLP. “Sitting tight with CIT makes sense right now, but clients should also assess credit requirements on a long-term basis. They should put together rolling 12-month projections, and maybe even three years out to the extent that they can, looking at peak seasons and what those needs may be. That assessment should be the road map for making decisions on their financing needs.”
Lenders are holding clients up to close scrutiny, which means that when current lines expire, they may ask for more collateral, offer financing at higher rates and even seek personal guarantees in some instances.
Wahba said one option that was prevalent 10 years ago might be making a comeback — have a bank line of credit and work with a factor at the same time.
Saul Berkowitz and Carol Lapidus, partners at the McGladrey & Pullen LLP accounting firm, said they were advising clients to look into either another factor or a credit insurance company. They acknowledged the difficulty in a short time span for all of CIT’s customers to find alternatives.
The chief financial officer of a firm that ended its factoring relationship with CIT, who spoke on condition of anonymity, said, “We didn’t want to risk having our accounts receivable becoming part of a bankruptcy.” The cfo said he had doubts about whether there is enough factoring capacity to absorb what would be lost if CIT were to disappear. For now, the firm will carry its own paper.
The 101-year-old CIT is a financial cornerstone of the fashion world, with an estimated 60 percent of the industry’s factoring volume. CIT loaned fashion companies and retailers about $4 billion last year.
Glen Podhorzer, another partner at Weiser, said one of his apparel clients was seeking a renewal of a $3 million line of credit, but the lender wanted a personal guarantee. The client worked on a 12-month projection and realized the $3 million figure was too high, eventually getting a $1.5 million credit line from the same lender.
Firms also need to keep a watchful eye on their inventory, Podhorzer said.
“Companies should clean it out and convert it to cash,” he said.
In addition, companies should start to eliminate unprofitable businesses if they haven’t done so already.
“Gone are the days of just pumping up volume,” Wahba said. “Companies need to get back to their core business, and then work on developing new product lines. It’s about managed growth versus your customer managing your growth for you.”
These strategies help to lower a firm’s need for capital, which can have a positive impact on credit lines and improve a firm’s relationship with its lender, the experts said.
On the legal advisory side, many attorneys are combing through contracts to see if deals can be renegotiated.
“Factoring agreements were drafted to account for the default of the client, not CIT, and this should be addressed in future agreements,” said Henry Condell of Phillips Nizer’s bankruptcy practice.
His firm is helping clients review factoring contracts with CIT, to determine when clients can end the agreements as well as the possibility of renegotiating renewal terms.
Generally, there are certain notice requirements that must be given to end a contract as well as provisions for termination fees. Those fees, according to sources familiar with the contracts, can run into six figures, particularly when the penalty to end the agreement can cost the equivalent of six months to a year of fees.
One idea worth exploring in a renegotiated contract is to see if clients can arrange to have payments by retail customers go directly to the client as opposed to CIT, Condell said.
The issue centers on what happens to the CIT accounts with credit balances in the event of a CIT bankruptcy. The status of those accounts remains uncertain.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast