By Rebecca Melvin
New York, July 13 - CIT Group Inc.'s convertible preferred stock lost another point on Monday as the New York-based commercial lender continued to be a market focus due to concern over its liquidity position and chatter about a potential bankruptcy filing.
"Volume was pretty light, but people were looking to get out of them," a New York-based sellside trader said, noting that a gradual slide in CIT's preferreds has been under way for about a month.
Conversely, financials overall were better following analyst Meredith Whitney's upgrade of Goldman Sachs Group Inc. to "buy," and upbeat comments on Bank of America Corp.
"It's quiet, but upticking," the sellsider said of the overall group of financial convertible preferreds.
Bank of America's 7.25% convertible preferred shares jumped 2.75 points, along with the common stock.
Wells Fargo & Co. was also higher, dragged along by the better Bank of America preferreds, the sellsider said.
The move came just ahead of quarterly earnings to be reported by financial companies in the coming days. Goldman Sachs is reporting Tuesday and Bank of America and Citigroup Inc. will report on Friday.
Following that a group of regional banks will report, with Wells Fargo expected to report a week from Wednesday, which "ought to look good," a New York-based buyside financial analyst said.
Elsewhere, Amgen Inc. remained active in trade, and Vale SA and SBA Communications Corp. were cited changing hands.
Sinclair Broadcast Group Inc. wasn't heard in trade despite the regulatory filing Friday in which the television broadcaster said it has begun planning for a potential restructuring, including a potential bankruptcy filing.
"That situation had been brewing for a long time," a New York-based sellsider commented on Sinclair Broadcasting.
The Sinclair 3% convertibles due 2027, which are putable back to the company in May 2010, were down 3.25 points to 79.25 at the end of Monday.
Moody's said it has also downgraded Sinclair's 4.875% senior convertible notes to Caa3 from Caa2 (no change to LGD4 - 59% assessment) as well as Sinclair Television Group, Inc.'s senior secured bank credit facility to B1 from Ba3 (no change to LGD1 - 5% assessment) and 8% senior subordinated notes, downgraded to Caa2, LGD3 - 32% from B3, LGD3 - 31%.
The downgrade and review follows the company's announcement that Cunningham Broadcasting Corp., one of Sinclair's local market agreement partners, may need to amend the terms of the agreement or receive an injection of cash to fund or extend the maturity of its outstanding term loan due on July 31, the agency noted.
CIT trades lower
CIT 8.75% perpetual convertible preferred traded at 9.23 and 9.5, which was down 1.3 points and 1.1 points, respectively, on the day, and down from 23.6 on June 9.
There was not a lot of volume in the paper, which has a par value of 50.
The CIT 7.75% mandatory convertibles due 2015, which have a par value of 25, were at 7.51.
CIT common stock fell 18 cents, or nearly 12%, at $1.35.
Its credit default swaps expanded.
"There were quotes 'bid-wanted'," a sellsider said. "People wanted to sell."
The CIT convertible preferred was 4 to 5 five points over parity, which represents s risk-reward play, a sellsider commented.
The lender to small and medium-sized businesses had said it was in talks with regulators about getting some support, but there wasn't a lot of clarity on whether it would be allowed to bolster its balance sheet by issuing low-interest, federally backed bonds under the government's Temporary Liquidity Guarantee Program.
"They are around making the case that they are important for small businesses," a sellsider said.
Credit ratings agencies have slashed CIT's debt ratings to junk. Moody's Investors Service further downgraded the company on Monday, citing the view that the probability of default has increased along with the possibility of a significant organizational upheaval or ownership change as a result.
Moody's put the firm's ratings, including its B3 senior unsecured rating, on watch for further downgrade.
"Damage to the franchise has become a more prominent issue" as the worries of CIT's customers about the lender could further hurt its liquidity prospects, Moody's said. CIT will probably need a significant capital infusion from a third party to stabilize its funding, the rating agency added.
CIT has already received $2.3 billion under the U.S. government's Troubled Asset Relief Program, but so far the government hasn't included CIT in its TLGP program, which would allow it to issue debt cheaply.
CIT has $10 billion of debt maturing through 2010 and hasn't tapped the corporate bond markets to raise funds since last year.
Independent research firm CreditSights said in a report that CIT may also be looking into a bankruptcy filing as a way to proactively protect its franchise value and leverage the government into providing support.
"While we do not view CIT as a systemic institution, it is a major middle-market lender. As well, a CIT filing needs to be weighted against the macro concerns of returning to a fourth quarter 2008 stressed funding environment, where unsecured markets froze up and where some money markets broke the buck," CreditSights analysts Adam Steer and David Hendler wrote in their report that was published late Sunday.
"While CIT is not a large counterparty for the large money center banks, the specter of another round of fear and questions over who is next may pose a risk to the banking system as a whole that needs to be addressed by regulators,"
BofA, Wells Fargo gain
Bank of America's 7.25% convertible preferreds traded up 2.75 points to 827.5 on light volume.
Shares of the Charlotte, N.C.-based bank holding company gained $1.11, or more than 9%, to $12.99.
Wells Fargo 7.5% convertible preferreds were up 1.1 points to 776.
Shares of San Francisco-based Wells Fargo closed up $1.93, or 8%, at $24.80.
A sellsider attributed the upward move to a respected, but generally dour analyst on financials, Meredith Whitney, who raised her rating on Goldman Sachs Group Inc. and made positive comments about Bank of America.
"She didn't like them when they were $2, but she likes them now at $12; go figure," the sellsider said, referring to Whitney's outlook on Bank of America common stock.
KeyCorp's convertible preferred was unchanged on the day after having bounced to 72 from 67 after another exchange round.
Huntingtion Bancshares and Fifth Third Corp. were also higher.
Mentioned in this article:
Amgen Inc. Nasdaq: AMGN
Bank of America Corp. NYSE: BAC
CIT Group Inc. NYSE: CIT
SBA Communications Corp. Nasdaq: SBAC
Sinclair Broadcast Group Inc. Nasdaq: SBGI
| Vale SA | | | NYSE: VALE
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| Wells Fargo & Co. | NYSE: WFC
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