On Thursday, CIT Group Inc. (CIT) announced that it will redeem $2 billion of 7% Series A Second Lien Notes. These notes include $1.6 billion of Series A Second Lien Notes (maturing in 2015) and nearly $400 million of Series A Second Lien Notes (maturing in 2016).
CIT aims to complete the redemption on January 23, 2012, having already given the redemption notice to the trustees. According to the terms, the Series A Notes will be redeemed at par. The Series A notes were issued on December 10, 2009 as a part of the company’s reorganization.
After completing this redemption, CIT will be left with nearly $1.5 billion principal amount of the 2016 Series A second lien Notes and about $2.9 billion principal amount of the 2017 Series A second lien Notes. Since 2010, the company has been lowering and refinancing first lien and second lien debt. With the completion of this redemption it will complete the payment of more than $17 billion of this debt. This comprises $7.5 billion of first lien debt, $7.8 billion of Series A notes and the entire $2.1 billion of Series B notes.
Concurrently, CIT announced that in the current quarter it used the existing secured credit facility to fund a part of its commercial aircraft, railcar and student lending portfolios. Earlier in August, the company had announced a new revolving credit facility worth $2 billion. The joint lead arrangers and book-runners of this credit facility were BofA Merrill Lynch, a unit of Bank of America Corporation (BAC), Barclays Capital, a unit of Barclays PLC (BCS), and J.P. Morgan, a division of JPMorgan Chase &Co. (JPM).
The repayment and refinancing of CIT’s costly debt within a short period will reduce the company’s funding costs. Ultimately, this will provide support to its future growth. Additionally, it will help the company to be flexible in providing financial help to small and mid-sized organizations.
However, sluggish growth in the industries, where CIT provides finance, could mar the company’s growth prospects. Furthermore, the company will have to focus on top-line improvement; otherwise, its bottom line will continue to remain under pressure.
Currently, CIT retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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