CIT Redeems Debt to Reduce Cost

In an effort to reduce its cost of funding, CIT Group Inc. (CIT - Analyst Report) announced the redemption of additional $3.29 billion debt that bears high interest. The redemption amount consists of its 7% Series C Senior Unsecured Notes worth $1.75 billion maturing in 2016 and $1.54 billion maturing in 2017.

These redemptions are expected to close on September 5, 2012. Upon closure, the company will have an outstanding principal balance of roughly $680 million of its 7% notes maturing in 2016. According to the stipulations of the Series C Notes, these are anticipated to be redeemed at par.

CIT’s capital ratios were strong as of June 30, 2012, with a Tier 1 capital ratio of 18.0% and a total capital ratio of 18.9%, up from 17.6% and 18.5% at the end of the prior quarter. This has somewhat helped the company eliminate its high cost debt.

CIT has been constantly and quickly restructuring its balance sheet in order to bring down its cost of capital as well as improve profitability since it emerged from bankruptcy in December 2009. The company eliminated or refinanced about $30 billion high-cost debt within a span of less three years. This reflects the fact that CIT is able to efficiently reduce its balance sheet risks. We anticipate all these to favor the company’s growth going forward and increase investors’ confidence on the stock.

The company remains hopeful to fully remove the impact of high-cost debt from its balance sheet and fund small and middle market clients in a proficient manner.

CIT currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain our long-term ‘Neutral’ recommendation on the stock.