On Tuesday, CIT Group Inc. (CIT) announced that it will repay its entire outstanding 10.25% Series B second lien notes amounting to approximately $860 million. As per the terms, the company has set the redemption price at 103.5% of the total principal amount.
CIT Group aims to complete the redemption on November 4, having already given the redemption notice to the trustees. These 10.25% Series B notes are maturing in 2015 and 2016. After the completion of this redemption, the company will be left with nearly $750 million of Series B notes that are maturing in 2017.
On September 21, CIT had provided notice to the trustees to redeem outstanding 10.25% Series B notes, which are maturing in 2013 and 2014 amounting to about $537 million. Hence, till date the total redemption of Series B notes announced by the company amounts to $1.4 billion.
Also, CIT Group has already repaid $4.5 billion or 60% of its first lien debt and refinanced the remaining 40% at a lower cost and on more flexible terms.
In November 2009, CIT filed for bankruptcy protection after it failed to restructure outstanding debt and could not pay its bills. Its finances were hit by the credit market collapse and rising defaults among its customers.
CIT Group emerged from bankruptcy in December 2009 having lowered its debt by more than 20% to approximately $43.3 billion. Since then the company has been profitable in the first two quarters of 2010.
CIT Group’s second quarter 2010 earnings came in at 71 cents per share, substantially ahead of the Zacks Consensus Estimate of 30 cents. This also compares much favorably with the prior quarter’s earnings of 49 cents, up 45%.
Results for the quarter benefited primarily from higher non-spread revenue. Also, the quarter experienced gains on sale of assets and recoveries of charged-off receivables. However, higher operating expenses and increased provision for credit losses were the downside. CIT Group retained its strong liquidity and capital position during the quarter.
The repayment and refinancing of CIT’s costly debt within a short period will lessen the company’s funding costs. This will also help the company to be flexible in providing much needed financing to small and mid-sized companies.
Solid performances of CIT’s Commercial and Corporate Finance segments augur well going forward. However, the company will have to focus on expense management. Failure to do so will continue to put pressure on the bottom line. A worsening credit quality also remains a major concern for the company.
CIT Group currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
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