CIT to Redeem Series A Notes

CIT Group Inc. (CIT - Analyst Report) announced its intention to redeem about $4 million of its 7% Series A Notes. Out of which, nearly $1 million notes are set to mature in 2016 and approximately $2.9 billion notes will be maturing in 2017.

CIT aims to complete the redemption on March 9, having already given the redemption notice to the trustees. The Series A notes were issued in December 2009 as a part of CIT’s reorganization.

Hence, after the completion of this redemption, all of the Series A Notes will be eliminated. Thereafter, only debt remaining in CIT’s balance would be Series C Notes and revolving credit facility, which will become unsecured.

This move will help CIT lower or refinance about $22 billion of first lien and second lien debt since 2010. This comprises $7.5 billion of first lien debt, its entire $12.3 billion of Series A notes and $2.1 billion of Series B notes.

Moreover, at present, CIT has ‘B2’ ratings from Moody’s Investors Service, the rating arm of Moody’s Corp. (MCO - Analyst Report) and ‘B+’ from Standard & Poor’s (S&P). Since recovering from bankruptcy, CIT is seeking to return to investment-grade credit ratings. The investment-grade ratings are Baa3 and above by Moody’s and BBB- and higher by S&P.

Additionally, the repayment and refinancing of CIT’s costly debt within a short period will lower the company’s funding costs besides improving the net interest margin and profitability. This will also help the company to be flexible in providing much needed financing to small and mid-sized organizations.

Moreover, we expect CIT to continue benefiting from its strong capital and liquidity position. However, sluggish growth across the economy could mar the company’s growth prospects. Furthermore, the company will have to focus on top-line improvement; otherwise, its bottom line will continue to remain under pressure.

CIT currently retains a Zacks #2 Rank, which translates into a short-term Buy’ rating.

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