On Wednesday, CIT Group Inc. (CIT) announced that it will redeem an additional $2.5 billion of its 7% Series A second lien notes. As per the deal, the company has set the redemption price at 102% of the total principal amount and the notes will be redeemed on a pro-rata basis.
The notes to be redeemed include about $1.1 billion principal amount of the remaining 2013 Series A Notes and approximately $1.4 billion principal amount of the 2014 Series A Notes. CIT aims to complete the redemption on May 2 and has already given the redemption notice to the trustees.
Since the beginning of 2010, including the current redemption, CIT has eliminated more than $10 billion of high-cost first lien and second lien debt, including First Lien debt of $4.5 billion, full Series B Second Lien Notes worth $2.1 billion and Series A Notes amounting to $3.5 billion.
In November 2009, CIT filed for bankruptcy protection after it failed to restructure its outstanding debt and could not pay its bills. Its finances were hit by the credit market collapse and rising defaults among its customers. CIT emerged from bankruptcy in December 2009 after the company lowered its debt by more than 20% to approximately $43.3 billion.
Last week, CIT announced the pricing of Series C Second-Priority Secured Notes (non-callable) worth $2 billion in aggregate principal amount. This is CIT’s first notes offering since its emergence from the bankruptcy in December 2009.
Earlier this week, 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. The company also announced that the facility’s revolving period would come to an end in March 2013, while the final maturity is scheduled in 2020. The facility will facilitate CIT Vendor Finance to provide funds to both existing as well as new loan originations.
All these actions are a part of CIT’s ongoing strategy to refinance debt at a lower rate and reduce funding costs. The redemption and refinancing of CIT’s costly debt within a short period will reduce the company’s funding costs. This will, in turn, help the company to be flexible in providing much needed financing, boosting investors’ confidence on the stock.
Earnings Recap
Last month, CIT’s fourth-quarter 2010 earnings came in at 37 cents per share, lagging behind the Zacks Consensus Estimate of 42 cents. Though the quarter’s results benefited primarily from lower interest and non-interest expenses, decline in net interest revenue and increase in provision for credit losses were the downside. Strong liquidity and capital position were quite impressive during the quarter.
We expect CIT to continue to benefit from its strong capital and liquidity position. However, the company needs to focus on expense management. Failure to do so will continue to keep its bottom line under pressure, thereby affecting its results negatively.
CIT Group currently retains its Zacks #5 Rank, which translates into a short-term “Strong Sell” rating. However, CIT’s peer – Duff & Phelps Corporation (DUF) retains a Zacks#3 Rank (a short-term ‘Hold’ rating).
DUFF&PHELPS CP (DUF): Free Stock Analysis Report
Zacks Investment Research
