On Tuesday, CIT Group Inc. (CIT) announced that it will repay an additional $500 million of 7% Series A second lien notes maturing in 2013. As per the terms, the company has set the redemption price at 102% of the total principal amount.
In January, CIT also completed the redemption of $500 million worth of 7% Series A second lien notes maturing in 2013 at redemption price of 102%of the total principal amount.
The company aims to complete the redemption on March 31, having already given the redemption notice to the trustees. After the completion of this redemption, the company will be left with nearly $1.1 billion of Series A notes that will mature in 2013.
Since the beginning of 2010, including the current redemption, CIT has eliminated more than $7.5 billion of 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 2013 Series A Notes amounting to $1.0 billion.
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 emerged from bankruptcy in December 2009 after the company lowered its debt by more than 20% to approximately $43.3 billion.
Earnings Recap
Last month, CIT’s fourth-quarter 2010 earnings came in at 37 cents per share, lagging 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 impressive during the quarter.
However, one of the closest competitors of CIT, Duff & Phelps Corporation (DUF) reported fourth-quarter 2010 earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 22 cents. The results were attributed to sustained expense management and cash flow generation as well as developments in key productivity measures.
Our Take
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.
We expect CIT to continue to benefit from its strong capital and liquidity position. However, the company will have to focus on expense management. Failure to do so will continue to keep the bottom line under pressure and negative effect on results will be reflected.
CIT Group currently retains its Zacks #5 Rank, which translates into a short-term “Strong Sell” rating.
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