Capital Markets

CIT Hikes Its Equity-Raising to $1.5B

Timing of the sale of common and convertible preferred leaves one observer saying the banking giant was "desperate."
Stephen TaubApril 22, 2008

CIT Group Inc. boosted its total capital-raising — through sale of $1 billion of common stock and $500 million of convertible preferred — by 50 percent from the infusion that it had originally planned.

The CIT common was priced at $11 per share, down more than 18 percent from its closing price of $13.50 on Friday. Such heavy dilution has become commonplace of late among financial institutions looking to shore up their equity capital.

Some market observers saw timing as the reason for the the price fall-off. “You have to figure CIT is desperate to raise capital,” said Gimme Credit, in a report issued Tuesday morning. “If not, we can’t imagine why it chose yesterday to announce a new offering, considering investors were still reeling from National City’s dilutive $7 billion private equity infusion.”

As we reported yesterday, the Cleveland-based banking giant said it is raising of $7 billion, including $985 million of private equity capital from Corsair Capital, which specializes in the financial services industry.

The global commercial finance company intends to use proceeds from the common sale for general corporate purposes, including $8 million to pay dividends on its outstanding preferred stock for the second quarter, and $23 million to pay interest on its outstanding junior subordinated notes in the third quarter. Proceeds from the convertible preferred sale will be used for general corporate purposes.

The convertible preferred will pay cash dividends at an annual rate of 8.75 percent. Each share will be convertible at any time, at the holder’s option, into 3.9526 shares of CIT’s common stock, plus cash in lieu of fractional shares. This is equivalent to an initial conversion price of about $12.65 per share of CIT’s common stock.

After June 20, 2015, CIT may convert some or all of the convertible preferred stock if its common stock closes 150 percent of the then conversion price for 20 trading days during any period of 30 consecutive trading days.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Lehman Brothers Inc. and Citigroup Global Markets Inc. are serving as joint bookrunning managers of these offerings.