CIT Group completes strategic milestones, refinances $4.6 billion of debt in third quarter

By Lisa Kerner

Charlotte, N.C., Oct. 23 - CIT Group Inc. chairman and chief executive officer John Thain said the company reached "several" strategic milestones in the third quarter, refinancing $4.6 billion of debt in that period and $31 billion overall since 2010.

The company issued $4 billion of new debt with a six-year weighted average life.

With the company's recent aCITons, CIT reduced the weighted average coupon of its debt to just over 3¼%.

CIT's internet bank celebrated its one-year mark with deposits of about $4 billion. Bank deposits now count for 28% of the company's funding mix, Thain stated.

The New York-based bank holding company is "very liquid" with over $7 billion of cash and short-term investments, Thain said.

In addition to the $7 billion, CIT has $1.4 billion of availability under its $2 billion revolver, chief financial officer Scott Parker said during CIT's earnings call on Tuesday.

Liquidity is up from the prior quarter and down slightly from Sept. 30, 2011.

Cash and short-term investment securities consisted of $1.9 billion related to the bank holding company, $3.6 billion at CIT Bank, $600 million at operating subsidiaries and $1.1 billion of restricted balances.

Currently, liquidity is 20% of assets.

Going forward, Thain said priorities for CIT include growing earnings assets, managing expenses and growing its bank.

CIT is making progress in achieving its profitability targets, funding costs are going down and the company has "ample" reserves, said Parker.

"We continue to access cost-efficient funding sources with a focus on building out our bank deposit platform," Parker said.

Parker said that CIT is progressing to its targeted funding mix of deposits of 35% to 45%, with the remainder split equally between secured and unsecured debt.

CIT's funding mix at Sept. 30 included deposits (28%), secured borrowings (33%) and unsecured borrowings (39%).

"Over time, we expect to gradually deploy a portion of our cash into high-quality, marketable securities consistent with other bank holding companies," said Parker, adding that the pace of such investments will be "dependent on the interest environment."

"New business yields are stable, although we are starting to see pockets of pricing pressure," Parker said.

According to Parker, CIT has made progress in its international funding initiatives, including a new funding in place in China.

While the company's overall assets are growing and many platforms are performing well, Parker said that macro challenges "are putting pressure on asset targets."

CIT has a "roadmap" it plans to phase in during 2013 in order to cut expenses by $15 million to $20 million per quarter, Parker said on the call.

New debt

CIT's new financings during the third quarter included:

• The issuance of $3 billion of senior unsecured debt, consisting of $1.75 billion of 4.25% notes due 2017 and $1.25 billion of 5% notes due 2022;

• A C$515 million securitization secured by a pool of Canadian equipment receivables from Vendor Finance with a weighted average fixed coupon of 2.285%;

• The issuance of $1.9 billion of deposits, of which about 80% was originated through internet channels;

• A new RMB 2.2 billion committed facility that will allow Vendor Finance to fund new originations in China. The committed availability period expires in September 2014 with a three-year final maturity for each drawdown under the facility;

• The renewal of a $500 million committed facility secured by receivables at a lower cost and with a final maturity in November 2014; and

• The funding of six Boeing aircraft under a secured facility guaranteed by the Export-Import Bank of the United States for total proceeds of roughly $200 million.

In addition, CIT redeemed at par all of the remaining 7% series C notes totaling about $4.6 billion. The acceleration of FSA discount accretion related to these redemptions increased third-quarter 2012 interest expense by about $454 million.

The weighted average coupon rate on outstanding deposits and long-term borrowings was 3.28% at Sept. 30, an improvement from 3.83% at June 30, 2012 and 4.84% at Sept. 30, 2011.

Financial highlights

CIT also reported a net loss for the quarter of $305 million, or $1.52 per diluted share, compared with a net loss of $32.8 million, or $0.16 per diluted share, for the third quarter of 2011. These include debt refinancing charges of $471 million related to the refinancing of high-cost debt.

The net loss for the first nine months of 2012 was $822 million, or $4.09 per diluted share, and included debt refinancing charges of $1.4 billion, compared with a net loss of $17 million, or $0.08 per diluted share, in the comparable 2011 period, a company news release said.

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