CIT Declares Vendor Financing Deal

Yesterday, CIT Group Inc. (CIT - Analyst Report) announced to establish a vendor financing relationship. The agreement was made between CIT Vendor Finance and MAGE SOLAR USA, a leading provider of residential, public and commercial solar energy systems.

Under the terms of the deal, the two companies developed a financing program. The program is expected to offer a lucrative source of financing to installers and commercial end-user customers of MAGE SOLAR’s photovoltaic systems.

Vendor financing programs are generally developed for product resellers, manufacturers and distributors for facilitating their customers. Under such programs, the customers would buy products as and when required and clear the payments over a period of time as scheduled by vendors. Therefore, CIT Vendor Finance associates with manufacturers and product resellers primarily in the technology, telecommunications and office equipment industries. Further, it provides lending and leasing solutions customized to their particular markets and individual business strategies.

Dublin-based MAGE SOLAR USA, a subsidiary of the international MAGE GROUP, is specialized in complete solar systems and provides high-quality photovoltaic modules, intelligent mounting systems and high-performance brand inverters. Further, it guarantees profitable solar energy systems to customers all over North America and in thirteen other countries.

The launch of the new financing program establishes a relationship between CIT and MAGE SOLAR, reflecting the company’s growth strategy. The transaction is CIT Vendor Finance’s first agreement within the alternative energy sector, which is expected to offer significant growth for the company as a whole.

Further, with the help of this program, integrators of MAGE SOLAR products will be able to offer cost-effective financing with flexibility in payments to their commercial customers. In addition, energy savings resulting from the progressive conversion to MAGE SOLAR’s products would be used to offset monthly financing payments. Likewise, customers will be able to preserve valuable working capital and increase operating cash flow.

Overall, the partnered financing program will benefit the commercial end-users while boosting CIT as well as MAGE SOLAR’s position in the market. Therefore, we believe such partnership becomes a considerable growth tool for CIT and with the establishment of such flexible financing option, more customers are anticipated to be attracted.

In March 2011, CIT also 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. Barclays Bank plc, a wing of  Barclays Plc (BCS - Snapshot Report), continues to serve as the Administrative Agent.

CIT stated that the facility’s revolving period would end in March 2013, while the final maturity is in 2020. The facility will allow CIT Vendor Finance to provide funds to both the existing as well as new loan originations.

On the whole,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 currently retains its Zacks #3 Rank, which translates into a short-term “Hold” rating. However, CIT’s peer – Duff & Phelps Corporation (DUF - Snapshot Report) retains a Zacks #4 Rank (a short-term ‘Sell’ rating).

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