CIT had cut off loans to Sears’ vendors earlier this month following the retailer’s report that its same store sales dropped in December and it planned to shutter up to 120 stores. Although CIT declined comment on the reports, Sears responded that CIT’s payables represented less than 5% of its inventories and that other factors continued to lend. About a week later, CIT reportedly retracted its stance, again extending credit to Sears’ suppliers.
However, according to Reuters, CIT is keeping Sears “on a tight leash” pending further information on the financial health of the retailer, which operates Sears and Kmart stores.
Sources said CIT may suspend loans until Feb. 23 when Sears Holdings releases its quarterly report which should give a better picture of the retailer’s financial state.
Retail analysts said today that when lenders like CIT cut off credit to Sears vendors, the retailer could be forced to draw on its own line of credit to pay for goods upfront, a move that could further pressure its financial situation. 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.
“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 today
Following the report, shares of Sears Holdings Corp. traded down 4.41% during midday trading today, hitting $42.09.
A CIT spokesman declined comment on the reports as did Sears Holdings.