The Factoring Force BIG Blog

Heavyweight investor Carl Icahn has offered to provide a loan of up to $6 billion to ailing receivables factoring giant CIT. Icahn is a bondholder of CIT and is not in favor of the restructuring plan proposed by CIT and is countering the proposals of the lender with a restructuring plan of his own. Icahn has been highly critical of the CIT management team and believes that new management would have a much better chance of receiving favorable consideration from banks.

CIT provides factoring services for as many as 1 million companies. These include retailers and suppliers who would be challenged to maintain operations if cash flow were suspended. With the holidays fast approaching, these companies can ill afford to see funding suspended from what is essentially the lifeblood of their business.

It is astonishing that one company’s distress can affect so many other businesses. It points out the critical importance of receivables factoring and the vulnerability of those who depend on those services. I’m sure that these companies were receiving favorable terms from CIT due to their size but it makes me wonder whether a few dollars in savings is worth the risk of being a minnow in the ocean of CIT’s client base. Just as community banks are still thriving in a down economy, smaller, more nimble factoring companies continue to support thousands of companies during these troubled times. I’m sure that there are many companies re-thinking their approach to receiving accounts receivables factoring support from mega-lenders in the future.

By the way, doesn’t Mr. Icahn bear a resemblance to Mel Brooks in this photo? I can assure you that there is a lot of “High Anxiety” among those involved in the CIT debacle. Board meetings at CIT probably resemble the campfire scene in “Blazing Straddles.” Lots of gas being passed.

In a press release issued today, Homex, one of Mexico’s leading home builders, announced their satisfaction with FOVISSSTE, a Mexican mortgage company, for implementing a factoring program with Mexico’s National Development Bank.

The CFO of Homex stated that the factoring initiative “will help us realize important efficiencies in our collection process.”

Now I’m not quite sure what the CFO is referring to here or what exactly the structure of the factoring program is. It is not really clear who is receiving financing. It appears that Homex is able to factor receivables through this program but receivables from whom? If consumers are purchasing directly from Homex and they are receiving mortgages from FOVISSSTE, then that is merely a mortgage loan. Somehow, payment is expedited in this process but the details are pretty murky.

So, I would advise the Homex PR team that, if they want to maximize the impact of an announcement such as this, it would help to give more details as to exactly how this benefits them. It appears that the financial and investment community is the target of this release but I’m not quite sure what the analysts are supposed to glean from this type of statement.

If I come across anything else I’ll publish it but if anyone else can shed some light on this let us know with a comment.