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13 Aug 2010
New York, August 13, 2010 -- Moody's Investors Service assigned a rating of B1 to CIT Group Inc.'s
new $3 billion senior secured term loan facility (Term Loan).
CIT's other ratings, including its B3 corporate family rating,
were not affected by this action. The outlook for CIT's ratings
The new loan, which matures in August 2015, was used to refinance
the remaining outstanding balance of CIT's preexisting first lien
loan facility. That loan, first arranged in July 2009 and
in October 2009 increased to $7.5 billion, provided
critical funding to CIT as it restructured and ultimately reorganized
under a pre-packaged bankruptcy plan in late 2009. CIT has
since aggressively paid down the high cost facility, including an
approximately $1 billion prepayment concurrent with the issuance
of the new Term Loan.
Borrowers under the Term Loan include CIT and certain of its subsidiaries.
The facility is guaranteed by nearly all direct and indirect material
domestic restricted subsidiaries of CIT and its subsidiary borrowers.
The Term Loan is secured by substantially all U.S. assets
owned by CIT not otherwise pledged to other secured debts and securitizations,
as well as stock pledges of certain foreign CIT subsidiaries. Pricing
on the Term Loan is significantly lower than on the first lien facility
In Moody's view, CIT's issuance of the Term Loan represents
a meaningfully positive step in the firm's efforts to reduce its
high average cost of funds and extend its debt maturity profile.
CIT's progress in this regard is consistent with Moody's prior
expectations, as reflected in CIT's B3 corporate family rating
and stable outlook.
The B1 rating on the Term Loan is two notches above CIT's corporate
family rating, based upon terms that meaningfully lower secured
lenders' risk of loss compared to holders of CIT's second-lien
notes and unsecured bonds. The carrying value of the collateral
securing the Term Loan at June 30, 2010 was approximately $14
billion, including domestic assets of approximately $10.8
billion and equity in certain international subs of approximately $3.4
billion. Pro forma collateral coverage was an estimated 4.7x.
CIT must comply with a minimum collateral coverage ratio of 2.5x.
Compared to the refinanced first lien facility, which was also rated
B1, the Term Loan provides CIT greater flexibility with respect
to use of proceeds from asset sales and operating cash flow. As
long as collateral coverage is at least 2.75x, CIT is not
required to prepay the Term Loan with asset sale proceeds, except
as required by the terms of the firm's second lien notes.
Moody's believes the strong asset protections provided by the Term
Loan warrant a two-notch uplift from CIT's corporate family
CIT's B3 corporate family rating is based on the company's
improved debt maturity profile and capital position after its 2009 reorganization,
as well as its positive operating performance and its progress re-establishing
access to certain funding sources since emerging from bankruptcy.
Moody's also believes that CIT's presence and history of operations
in multiple commercial finance businesses, the steps the firm has
taken to shed non-core and underperforming assets, and the
improvements the company is making to its risk management and controls
all contribute to prospects for improved performance going forward.
However, Moody's view is balanced by several concerns relating
to CIT's longer-term viability. CIT has an uncompetitive
cost structure because of its high cost of funding, recent improvements
notwithstanding. The FDIC's Cease & Desist order on CIT
Bank represents a significant obstacle to CIT's efforts to establish
a resilient long-term funding profile, in Moody's view.
CIT remains reliant upon confidence-sensitive wholesale funding
sources for financing not provided by deposits, but the company's
market access is constrained given its credit profile. There are
execution risks associated with CIT's strategies to address its business
and funding issues. Additionally, CIT continues to contend
with legacy asset quality performance issues that hamper its profitability.
CIT's rating outlook is stable, reflecting Moody's expectation
that CIT's continued liability management efforts will result in
further incremental improvements to its operating margins and financial
flexibility. The stable outlook also reflects Moody's view that
the demands on CIT's cash resources are manageable over the outlook horizon
(12-18 months). This view is balanced by continuing uncertainties
associated with CIT's longer-term funding model, franchise
composition and positioning, and asset quality and earnings performance.
CIT's ratings could be considered for upgrade if the company demonstrates
further progress toward achieving high quality acceptable returns through
improved credit performance and lower funding costs and if CIT Bank's
Cease & Desist order is lifted.
In its last CIT rating action on May 21, 2010, Moody's
assigned a corporate family rating of B3 to CIT, and ratings of
B1 to its first lien secured debt, B3 to its second lien secured
notes, and Caa1 to its unsecured debt.
The principal methodology used in rating CIT is Analyzing the Credit Risks
of Finance Companies, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these issuers can also be found in
the Rating Methodologies sub-directory.
CIT Group, Inc. is a commercial finance company with headquarters
in New York City and Livingston, New Jersey.
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 rating to CIT's $3 billion secured term loan
250 Greenwich Street
New York, NY 10007
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