CIT Says a New $3B Facility Shows Its Strength

Commercial finance company signs deal with Goldman.
Stephen TaubJune 9, 2008

CIT Group Inc. received a $3 billion long-term financing facility from Goldman Sachs, and said the arrangement will provide CIT with funding flexibility to finance both existing assets and new originations.

The arrangement, which has a 15-year average life, the global commercial finance company said, will involve financing denominated in a variety of currencies across the company’s commercial finance businesses.

CIT asserted that the transaction reflects the significant progress it has made to strengthen its balance sheet and improve and diversify its liquidity and funding. Since April 1, CIT noted, it has successfully executed on several additional key balance-sheet strengthening initiatives. They include raising $1.6 billion in new capital while retiring about $5 billion in debt; completing financings of about $1.5 billion; and selling more than $2 billion of assets at approximately book value.

Back in March, CIT Group announced that it would borrow $7.3 billion in unsecured loans from about 40 U.S. banks, citing “protracted disruption in the capital markets as well as recent actions by the rating agencies.” That borrowing “was not our preferential path, but one that is best for the company long-term,” said CEO Jeffrey Peek during a conference call with analysts at the time. “We did it to demonstrate strong liquidity to you and our customers.”

In late May, Moody’s dropped CIT’s senior unsecured debt rating from A3 to Baa1 and left the financing company’s long-term ratings on review for possible downgrade. The credit-rating agency affirmed CIT’s short-term rating of Prime-2.

Moody’s said the downgrade of the long-term rating reflected CIT’s business profile, giving consideration to the business transitions now under way and the associated execution risks. “In recent quarters, CIT has had to confront difficult operating and funding conditions resulting from deteriorating performance in its home lending business and broader credit market illiquidity,” the agency said. “This has led to a weaker credit profile as reflected in the Baa1 rating.”

In an unusual move, CIT at the time challenged Moody’s assessment. “We disagree with the ratings actions that Moody’s has taken, particularly in light of the significant progress we have made to strengthen our balance sheet, improve liquidity and position CIT for long-term success and profitability,” the company said in a statement. “We have successfully executed on our current strategic funding initiatives, which have included capital raising, asset sales, financings and growth at CIT Bank.”