On Monday, CIT Group Inc. (CIT) announced the renewal of its $1 billion vendor credit facility. The new U.S. Vendor Finance conduit facility includes significantly lower costs, higher advance rate and increased maturity term. Barclays Bank PLC, a wing of Barclays Plc (BCS), continues to serve as the Administrative Agent.
CIT also stated that the facility’s revolving period would end in March 2013, while the final maturity in 2020. The facility will allow CIT Vendor Finance to provide funds to both existing as well as new loan originations.
Last week, CIT had announced the pricing of Series C Second-Priority Secured Notes (non-callable) worth $2 billion in aggregate principal amount. CIT is offering these bonds in two parts. One set will offered be in a $1.3 billion batch due 2014, priced at par and yielding interest at 5.25%. The other, in a $700 million tranche due 2018, priced at par and bearing interest rate of 6.625%.
CIT intends to use the proceeds from the offerings to retire a part of Series A in Second-Priority Secured Notes maturing in 2013 and pay related premiums, fees and expenses. Since 2010, the company has redeemed more than $7.5 billion of first lien and second lien debts, including First Lien debt of $4.5 billion, full Series B Second Lien Notes worth $2.1 billion, and 2013 Series A Notes amounting to $1.0 billion.
We expect CIT to continue benefiting from its strong capital and liquidity position. However, the company needs to focus on its expense management; otherwise, the bottom line will remain under pressure, reflecting negative effect on results. Further, the restoration of the vendor financing facility will support CIT’s commitments towards providing stable and low cost funds to small businesses.
CIT Group currently retains its Zacks # 5 Rank, which translates into a short-term Strong Sell rating.
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