CIT Group Inc. (CIT) announced a new revolving credit facility of $2 billion with a consortium of key relationship banks. The new credit facility with an interest rate of LIBOR +2.00-2.75% (with no floor) would mature in August 2015. The interest rate is based on CIT’s long term senior unsecured credit rating.
CIT commented that the credit facility along with the available corporate cash would be utilized to fully repay and terminate its $2.5 billion first lien term loan. The revolving credit facility would presently benefit from the same collateral and security package as the earlier first lien term loan.
However, once CIT repays its outstanding Series A Notes, this facility would automatically become unsecured. This in turn will provide the company additional financial flexibility.
BofA Merrill Lynch, a unit of Bank of America Corporation (BAC), Barclays Capital, a unit of Barclays PLC (BCS), and J.P. Morgan, a division of JPMorgan Chase &Co. (JPM) served as joint lead arrangers and joint book-runners on CIT’s revolving credit facility.
Since 2010, CIT refinanced or repaid about $13.1 billion of first lien and second lien debt that comprise $7.5 billion of first lien debt, more than $3.5 billion of Series A Notes and its entire $2.1 billion of Series B Notes.
Our Take
With the current revolving credit facility, CIT will be able to reduce its debt burden to some extent. Also, the company would be able to have a flexible balance sheet. Further, 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.
Currently CIT retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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