What do CIT's woes mean for security?

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Thursday, July 23, 2009

NEW YORK—Reports from the financial papers indicate the embattled lending giant CIT has found a solution that will allow it to avoid bankruptcy temporarily, but according to the Bloomberg news agency, the company may still be forced into bankruptcy.

What does this mean for the alarm industry? Traditionally, CIT has not been a very large player in security alarm (despite having been owned by ADT parent Tyco from 2001 to 2002), but has always been active with government contractors and had made a push lately to get more into the alarm and security integration industry.

The company extended a $70 million line of credit to Alarm Capital Alliance, for example, and was a lending partner to the National Association of Installing Partners. CIT was also a partner with Spire Capital, which was an investor in Sonitrol before Stanley bought the company.

However, the company has already eliminated the Media Group, which serviced the alarm industry, said Gretchen Gordon, formerly CIT’s director of Media and Communications. It doesn’t indicate any pessimism on CIT’s part toward security, she said, but rather reflects what CIT has reported in SEC filings: The company must shrink to stay in business.

So, CIT is essentially out of the commercial security business. Is that a bad thing?

“I think it’s a big deal any time you lose a capital provider that understands the industry,” Gordon said. “There seems to be at any given time a finite amount of lenders who understand security. But can they be replaced? Absolutely ... It will create an opportunity for a new lender to come into the market and figure it out. Yes, in the short term it could be an issue, just because there’s one fewer capital provider that might be dependable, but, long-term, the market will correct itself.”

CIT’s loss might be felt most by those looking for larger financing deals, she said, because other lenders rely on CIT to be part of those bigger deals, so that no one entity takes on all of the risk.

And what might happen to those companies who might have a line of credit with CIT? “I don’t know, honestly,” Gordon said, but she didn’t think anyone would simply be left out to dry. “If they file bankruptcy, there are generally lenders that step in and are interested in those types of loans ... I think there’s capital out there,” and the metrics of the security industry remain strong enough that capital would be interested in supporting it.