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By Steven Church and William Rochelle
July 18 (Bloomberg) -- A hardware distributor in Alabama became the first company to blame the troubles of commercial lender CIT Group Inc. for its bankruptcy yesterday when it filed for protection from creditors.
Moore-Handley Inc., which supplies tools and other items to hardware stores and home centers, said in court papers that it was forced into Chapter 11 because it had difficulty getting cash from CIT, its lender.
The company has tried to negotiate with CIT, though “the federal government’s recent decision not to support CIT’s reorganization has thrown CIT into disarray and casts substantial doubt on CIT’s ability to continue to fund the Debtor’s working capital requirements,” Moore-Handley said in documents filed in U.S. Bankruptcy Court in Birmingham, Alabama.
CIT has reported $3 billion of losses in the past eight quarters and has been in talks with lenders about funding its own possible bankruptcy, according to people with knowledge of the matter. CIT may need as much as $6 billion to avoid filing for bankruptcy protection after the U.S. wouldn’t give the firm a second bailout, according to CreditSights Inc.
Curtis Ritter, CIT’s director of media relations, didn’t immediately respond to a request for comment.
The company received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.
‘Crisis’ for Retailers
CIT has said its bankruptcy would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers, according to internal documents.
CIT accounts for about 70 percent of all short-term U.S. financing known as factoring, worth about $40 billion annually, according to Ray Ecke, president of Credit Management Resource in Oakland, New Jersey. In factoring, one company purchases another’s accounts receivable.
Moore-Handley said in court filings that it owes CIT $18.8 million in secured debt, including $11.2 million on a revolving credit line and $6.4 million on a term loan. It also owes $1.25 million to equipment lenders.
Moore-Handley also has been hurt by the slowdown in the housing market, with sales for 2009 expected to be 20 percent lower than last year, the company said in court records.
To survive the downturn, the company hired financial Carl Marks Advisory Group LLC and formed a plan to cut expenses.
Even with that effort, the company has had trouble getting funds from CIT under their current financing arrangement, Moore- Handley said.
The company said its main customers are independent hardware and building-supply stores and small, family-owned chains. Its core customers are in the Southeast.
Moore-Handley is asking the bankruptcy judge in Birmingham, Alabama, for authority to use cash pledged as collateral to CIT even though it doesn’t have consent from the New York-based lender.
The Alabama company calls itself the second-largest independent hardware and building material distributor in the U.S. It reported a loss of $1.6 million last year on net sales of $145.5 million. Through June 30, the company already lost $2.4 million.
The case is In re Moore-Handley Inc., 09-04198, U.S. Bankruptcy Court, Northern District Alabama (Birmingham).