CIT Group Bankruptcy Affects Railcar Supplier

The largest customer for railcar builder American Railcar Industries is now bankrupt, but ARI says it believes the equipment finance operations of CIT Group will continue as normal while the fleet owner moves through that bankruptcy process.

While railroads and many shippers directly own a lot of the railcars they use for cargoes, perhaps the largest customers for equipment makers are the leasing and finance companies that accumulate huge fleets and then charge for their use. They serve both as the initial buyer of costly equipment and as an intermediary supplier of equipment to many end-use freight shippers that do not want to be car owners.

ARI manufactures rail hopper and tank cars, and had combined car-building and repair revenue in the third quarter of $78.1 million. It said CIT Equipment Financing, whose parent firm filed for bankruptcy protection Nov. 1 with a prepackaged reorganization plan, accounted for about 39 percent of ARI’s revenue in the third quarter and 33 percent for the first nine months of this year.

ARI said in its earnings announcement CIT had “stated that none of its operating subsidiaries, including CIT Equipment Financing, will be included in the bankruptcy filings.”

As a result, the manufacturer said, “ARI understands that all of its operating entities are expected to continue normal operations during the pendency of the bankruptcy cases.”

ARI said its business risks with CIT include the ability to convert backlogged car orders into revenue, or that CIT “may not continue normal operations or may seek to renegotiate its existing obligations.”

Contact John D. Boyd at jboyd@joc.com.