On Wednesday, CIT Group Inc. (CIT) 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 stated that these bonds would be sold to qualified institutional buyers (QIBs) as per the Rule 144A under Securities Act of 1933. Additionally, in accordance with the Regulation S under Securities Act, only non-U.S. investors will be able to purchase these bonds. The company expects the offering to close on March 30, 2011.

The bonds also have a provision of allowing the bondholders to sell these back to CIT at face value or 101% of par value (including accrued and unpaid interest), in case of buy out or change in control. These notes are rated B3 by Moody’s Investors Service, the ratings arm of Moody’s Corp. (MCO), and B+ by Standard & Poor’s (S&P) Ratings Services.

This is CIT’s first notes offering since its emergence from the bankruptcy in December 2009. The company 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 the beginning of 2010, CIT 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.

This private offering is a part of CIT’s ongoing strategy to refinance debt at a lower rate and reduce funding costs. This also helps the company to be flexible in providing much needed financing to small and mid-sized companies.

We expect CIT to continue to benefit 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.

CIT Group currently retains its Zacks #5 Rank, which translates into a short-term Strong Sell rating.

 
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