CIT Group Inc. (CIT), which has been redeeming notes for quite sometime now, announced its decision to redeem the remainder of $681 million of its 7% Series C senior unsecured notes. These notes mature in 2016 and will be redeemed at par on a pro rata basis.
CIT aims to complete the redemption on September 17, having already issued the redemption notice to the trustees. The Series C notes were issued in December 2009 as part of the company’s reorganization initiatives. Following the completion of this redemption, there will be no high-cost debt left, except for the unsecured revolving credit facility.
CIT has been constantly and quickly restructuring its balance sheet in order to bring down its cost of capital as well as improve profitability since it emerged from bankruptcy in December 2009. With the completion of this redemption, the company would have redeemed or refinanced approximately $31 billion of high-cost long-term debt since 2010. Moreover, the redemption of the debt would lead to an overall reduction of 250 basis points in the funding cost.
CIT announced the redemption of debt for the second time this month. On August 6, the company announced the redemption of $3.29 billion Series C senior unsecured notes that bear high interest.
Additionally, earlier this year, impressed by CIT’s efforts to trim down debt, stabilize its balance sheet and reduce funding costs, Standard & Poor’s (S&P) and Moody’s Investor Service, the ratings arm of Moody’s Corporation (MCO), upgraded the company’s long-term Issuer Credit Ratings (ICRs).
We expect CIT to continue benefiting from its strong capital and liquidity position. Apart from lowering its funding cost, the repayment and refinancing of costly debt will improve its net interest margin and profitability. Nevertheless, the sluggish growth across the economy could mar the company’s growth prospects. Furthermore, the company will have to focus on improving its top-line improvement; otherwise, its bottom line will continue to remain under pressure.
CIT currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ rating on the stock.
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