Quick quiz: this weekend, what bank put on its little red shoes, clicked its heels three times and wished it was too big to fail? If you guessed CIT Group, you’re correct. They also retained Skadden Arps as bankruptcy counsel, just in case the whole Wizard of Oz thing didn’t work out.

Who are they? A spinoff of Tyco (OMG SCANDAL) in business as a lender:

CIT is a lender to nearly a million mostly small and midsize businesses and companies, and while its failure may not jolt financial markets in a large way, it could hurt the flow of credit to many businesses to whom banks traditionally won’t lend.

About 700 companies have a total of $3.9 billion in undrawn revolvers from CIT, according to documents reviewed by The Wall Street Journal. Many are small businesses that obtained revolving facilities of about $10 million to $50 million in size. CIT is the sole or main lender to two-thirds of these companies, and a failure of the lender would leave many without access to funds.

I read somewhere else that they lend mostly to restaurant and retail franchises. (Example: Dunkin Donuts, so there have probably been some guys in Seattle praying all weekend for their East Coast competitors to feel the pinch. ) The federales are under the impression that should CIT fail, someone else will step up to lend to this market, because a) banks are just dying to lend money these days and b) the retail sector is absolutely, unbelievably guaranteed never to fail during a period of 10%+ unemployment.

CIT is, also, one of the organizations who rushed to reclassify themselves as a “bank holding company” so they could get their mitts into the TARP, to the tune of $2.3 billion. I mention this only because it’s my money and I’m still bitter about it. Stellar investment is stellar:

What CIT is doing right now is begging the FDIC to backstop their latest debt offering, because their current rating is “junk” (also known as “what our shareholders probably feel like they’ve been kicked in”), so trying to do so without FDIC guarantees is not going to happen. They’ve been asking FDIC to do this since January or so, and getting nothing but the cold shoulder:

Sad about that, CIT. Their Feb 2010 debt yields about 40% right now, so you can tell how much fail is priced in.

This has all become relevant now, because they have $2.7bn in debt due by the end of this year, with the most critical payment on it coming up in August – hey, next month! All in all, they have almost $70 bn in liabilities, including a few names you might recognize: “CIT’s annual report says that last year it secured a $3 billion financing facility from Goldman Sachs Group and a $500 million one from Wells Fargo.” (Goldman, natch, swears they’ve hedged it eight ways to Sunday.)

Nothing to do at this point but sit back and watch, I suppose.