Rent-to-own News - Unstable markets force Textron to exit finance units

Textron, a provider of inventory financing for the rent-to-own industry, plunged 20 percent in stock exchange trading this week following an announcement the company will exit most of its finance businesses and avoid a breakup, according to Bloomberg.com.

The Providence, Rhode Island-based company announced it has approved a plan to exit all of its commercial finance business through a combination of orderly liquidation and selected sales, other than that portion of the business supporting the financing of customer purchases of Textron-manufactured products.

Based on that news, Textron stock Tuesday dropped $3.14, or 20 percent, to $12.20 at 4:01 p.m. in New York Stock Exchange composite trading. It was the biggest percentage loss since Sept. 26, 2001. The stock recovered somewhat later in the week opening trading Friday at $12.86 per share.

Profit this quarter will be hurt by losses at Textron Financial Corp., the company said in a statement. Textron plans to sell or liquidate $7.9 billion of the unit’s $11.4 billion in managed receivables, more than the $2 billion previously targeted. It will retain its finance unit that serves its manufacturing units.

“Given the state of the credit markets and the government’s intervention on behalf of tier one commercial paper issuers, the Textron Financial business model is broken,” Brian Betts, an analyst with Gabelli & Co. in Rye, New York, said in a note to investors quoted by Bloomberg News. “We view this announcement as a painful but necessary step for Textron."

Betts has a “buy” rating on the stock.

"The “Textron financial business model is broken," Betts said. "Focusing solely on captive financing will reduce the portfolio to a manageable size and allow the company and investors to focus on the profitable and value-added activities.”

Industry analysts anticipate the transition will take place the first quarter of 2009.

On the company's website, Textron says it has been providing financing mechanisms since 1971 to help manufacturers, distributors and dealers, stock and move goods. Textron's claims its inventory financing is a revolving line of credit that ranges from:$50,000 to over $10 million for distributors and dealers and $2 Million to $15 million for exclusive and non-exclusive manufacturer programs.

Fitch Ratings downgraded its credit ratings for Textron as well as the company's financial unit Tuesday, citing declining performance and financial health.

For the company's finance arm, Textron Financial Corp., Fitch lowered the issuer default and senior unsecured debt ratings to "BBB+" from "A-" and lowered its junior subordinated notes to investment-grade "BBB" from "BBB+."

The rating outlook is "negative" for both entities.

"Executing this new strategic direction for TFC is expected to significantly enhance our long-term liquidity position in light of continuing disruption and instability in the capital markets, " said Lewis Campbell, chairman, president and CEO of Textron, in a company press release.

mevans@rtohq.org