John Gordon's  Instablog

In looking at CIT's last few earnings calls, its Feb 2009 investor presentation (theme: challenges, opportunity, making progress), and press coverage, it is unclear the breakout and amount of the non-performing loans.

The 2009 CIT backup documents showed "retail" at only 7% of the portfolio.

It's long been noted in franchisee sectors (see www.blumaumau.org, CIT discussion threads) that lenders cash flow projections and SBA business projections have been/are contrived, way too optimistic.

Of course, same is true of alot of big M&A deals, too. Chain restaurant M&A deals were in a 6 to 7 EV/EBITDA  multiple range forever (1980 to 2005) but then spiked to 9-11 range in 2005-2007. The recent highs were, interestingly, the Dunkin Donuts deal, valued at 12.8 x (in 2005) and Krispy Kreme, at 21.4 x (in 2008). Both of these companies are franchisors, have had recent franchisee failure  (3 multi-unit Dunkin franchisees in the last 45 days have filed for CH-11 reorganization. See www.nrn.com/financial.aspx.?id=369470.

What proportion of the CIT non-performing loans are chain franchisees?  The publicly traded franchisors rarely refer to franchisee success metrics in their disclosures. This information could go a long way to highlighting the policy debate, e.g., CIT is Main Street and should be saved. 

Disclosure: no stock positions whatsoever. 

John A. Gordon

Chain Restaurant Earnings and Economics Experts

www.pacificmanagementconsultinggroup.com