On Wednesday, CIT Group Inc. (CIT) announced that it would redeem $1 billion of 7% Series A second lien notes for a redemption price set at 102% of the total principal amount.
Additionally, CIT also stated that in August the company finished open market repurchase of about $400 million of Series A debt. This included nearly $300 million of Series A Second lien Notes (maturing in 2014) and $100 million of Series A Second lien Notes (maturing in 2017).
CIT aims to complete the redemption on September 30, having already given the redemption notice to the trustees. These 7% Series A notes were maturing in 2014. The Series A notes were issued on December 10, 2009 as a part of CIT’s reorganization.
After completing this redemption and debt repurchase, CIT will be left with nearly $464 million principal amount of the 2014 Series A second lien notes and approximately $3.1 billion principal amount of the 2017 Series A second lien notes.
After this redemption, CIT will have lowered or refinanced about $14.5 billion of first lien and second lien debt since 2010. This comprises $7.5 billion of first lien debt, $4.9 billion of Series A notes and its entire $2.1 billion of Series B notes.
The repayment and refinancing of CIT’s costly debt within a short period will reduce the company’s funding costs. This will also help the company to be flexible in providing much needed financing to small and mid-sized organizations.
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, and adversely affect the results.
CIT currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, one of the peers of the company, Dollar Financial Corp. (DLLR), has a Zacks # 2 Rank (short term ‘Buy’ rating).
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