Sears Plunges As CIT Reins In Loans (Again)

Tyler Durden's picture

While so many were hoping for the siren-call of private-equity or perhaps a reverse-merger MBO with RadioShack, CIT has once again managed to pour well-risk-managed-credit-extension cold water on Sears short-squeeze. SHLD is down 6% following Reuters reports (via The Orlando Sentinel) that CIT will again stop providing loans to suppliers of Sears Holdings as the lender/factor awaits further information of the company's health. Volume picked up dramatically as the stock fell and we note that SRAC (the more active 5Y CDS contract) is leaking wider but has surged around 400bps (to 1800bps) in the last week (as the stock has been treading water off its spike squeeze highs on 1/23).

 

Orlando Sentinel: CIT Keeping Sears On A Short Leash

NEW YORK (Reuters) - CIT Group Inc will again stop providing loans to suppliers of Sears Holdings Corp after Tuesday as the business lender awaits more information on the retailer's financial health, two retail sources told Reuters on Monday.

 

CIT is keeping the operator of Sears department stores and the Kmart discount chain on a tight leash, the sources said, after the company posted 18 straight quarters of sales declines.

 

Sears is scheduled to report annual results on February 23, when Chairman Edward Lampert typically publishes a letter to shareholders. The hedge fund manager is Sears' largest shareholder and owns directly and through related entities about 59 percent of the retailer.

 

CIT and other finance companies, known in the industry as factors, provide short-term loans to manufacturers while they are waiting to be paid by those receiving their goods or services. CIT's payables represented less than 5 percent of inventories, Sears has said in the past.

 

If lenders like CIT refuse to finance Sears' suppliers, it could force the retailer to draw on its line of credit to pay for goods up front. If too many vendors seek prepayment, banks could be pressured and cut back on lines of credit for Sears, making it harder for the company to buy inventory.

 

CIT, run by Wall Street executive John Thain, had initially halted loans to Sears suppliers in early January, just weeks after the company posted dismal holiday sales numbers and said it would close as many as 120 stores.

 

It now seems like that was a temporary arrangement.

 

"People are recognizing that they don't have to be in harm's way and really go out on the limb when there is so much other business out there that they would deem to be of real quality," said one of the sources, who has learned that CIT is not writing any new business for Sears after Tuesday, January 31.

 

CIT spokesman Curt Ritter said on Monday it does not comment on specific customers. Sears declined to comment.

 

One source said that no other factoring company has changed terms for suppliers who ship to Sears.