Analysts say CIT Group needs relief but has time; Children's Place proxy fight heats up

By Cristal Cody

Tupelo, Miss., July 13 - Shares of CIT Group, Inc. skidded nearly 22.00% on Monday before the stock regained some ground to close off 18 cents, or 11.76%, at $1.35 on worries of an imminent bankruptcy filing.

Analysts who spoke to Prospect News on Monday said bankruptcy is not a total certainty yet and the company could last through this year.

In other situations, investors are favoring Children's Place Retail Stores, Inc. in its proxy fight against former chairman and chief executive officer Ezra Dabah, an analyst said in an interview on Monday.

Meanwhile on Wall Street, financial stocks pulled the markets up Monday.

The Dow Jones Industrial Average closed up 185.16 points, or 2.27%, at 8,331.68.

The Standard & Poor's 500 index added 21.92 points, or 2.49%, to end at 901.05, and the Nasdaq Composite index rose 37.18 points, or 2.12%, to 1,793.21.

CIT needs relief

CIT, the New York-based lender to small and mid-sized companies, has warned it may not receive capital through the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. The company was reportedly in talks Monday for government aid.

Bankruptcy filing concerns also were fueled by the company's hire of law firm Skadden, Arps, Slate, Meagher & Flom LLP.

The company's $10 billion of debt that matures through 2010 is compounded by lines of credit by small businesses that may decide to use those now rather than later.

"Now they're in the headlines, a lot of their borrowers that have unfunded lines of credit with them may end up drawing down on those commitments of about $5 billion," David Chiaverini, an analyst at BMO Capital Markets Corp., said in an interview Monday. "If they were all at once to draw down on those commitments, CIT could end up filing for bankruptcy sooner."

CIT does have a few options, he said. In the event of a bankruptcy, CIT unsecured debt holders could convert the debt into equity.

"If they end up going that route, they would emerge from bankruptcy with a new capital structure and keep all the current businesses they have," he said. "Prior to the recent panic in the shares over the past few days, I was expecting them to survive through 2009 and into 2010."

Sameer Gokhale, an analyst with Keefe, Bruyette & Woods, Inc., told Prospect News in an interview on Monday the company clearly needs some relief urgently.

"The company could take steps to shrink its portfolio and survive through the beginning of next year, but beyond that I think it gets much more challenging for the company," he said. "It's not a certainty at this point, but every day the company goes without receiving some form of government assistance, concerns over a potential bankrupting filing increase."

Children's Place pulls no punches

Children's Place interim CEO Charles Crovitz urged shareholders in a letter Monday to reject Dabah's three board nominees and to support the company's three incumbent nominees at the July 31 annual meeting.

The retailer also released a 2002 photo of Dabah and one of his board nominees, Raphael Benaroya, in a friendly embrace.

"Dabah claims he does not have any prior social, business or professional relationship with any of his nominees. However, the photo ... from a 2002 event clearly suggests otherwise," Crovitz said.

In a statement on Monday, Dabah said the photo is from the Boys Town Jerusalem's 54th anniversary dinner, where he and Benaroya were honored as outstanding philanthropists.

"One photo does not make a relationship," Dabah said, reiterating that he and the three nominees have "no prior social, business or professional relationship."

An analyst who follows the company but did not want the firm's name used told Prospect News on Monday that the photo makes it "harder to believe" Dabah.

"The investors I've spoken to are not too worried Ezra's going to win," the analyst said. "I've heard they are going to vote in favor of current management."

Dabah and his group hold 22.00% of outstanding shares of the Secaucus, N.J.-based specialty children's retailer. Dabah and his father-in-law, Stanley Silverstein, also are members of the board.

Children's Place said if Dabah's nominees are selected, he would have five of nine seats and regain control of the company he was forced to leave in 2007 after then-company auditor Deloitte & Touche said it would not rely on his representations for audits.

However, Dabah said in the statement that if his nominees are elected, Silverstein will resign from the board.

Shares of Children's Place closed up 93 cents, or 3.62%, at $26.65 on Monday. The stock has traded from $16.45 to $43.40 over the past year.

Mentioned in this article:

Children's Place Retail Stores, Inc. Nasdaq: PLCE

CIT Group Inc. NYSE: CIT

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