In an effort to make itself more flexible with respect to financial support, business lender CIT Group Inc. (CIT) refinanced $3 billion of its first lien debt. The company also prepaid about $1 billion of the debt with available corporate cash.
 
This $1 billion takes CIT’s repayment to $4.5 billion or 60% of its original first lien debt. The company refinanced the remaining 40% at a lower cost and with more flexible terms.
 
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 having restructured its debt. Since then the company has been profitable in the first two quarters of 2010.
 
The repayment and refinancing of the company’s costly debt within a short period will lessen CIT’s funding costs. This will help the company to be flexible in providing much needed financing to small and mid-sized companies.
 
The new debt issued under an amended credit facility will mature in August 2015.
 
CIT’s second quarter 2010 earnings came in at 71 cents per share, substantially ahead of the Zacks Consensus Estimate of 30 cents. This also compares very favorably with the prior quarter’s earnings of 49 cents. Results for the quarter benefited primarily from higher non-spread revenue. Also, the quarter experienced gains on sales of assets and recoveries of charged-off receivables. However, higher operating expenses and increased provision for credit losses were the downside. CIT retained its strong liquidity and capital position during the quarter.
 
Solid performances of CIT’s Commercial and Corporate Finance segments augur well going forward. However, the company will have to focus on expense management. Failure to do so will continue to put pressure on the bottom-line. A worsening credit quality also remains a major concern for the company.
 
CIT currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
 
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