Financial Services

Return to Article

CIT Secures Credit, Shares Jump

Debra Borchardt

CIT Group(CIT Quote) rallied as much as 15% Monday, after Goldman Sachs(GS Quote) provided a $3 billion line of financing.

The capital infusion will enable CIT Financial, a subsidiary of CIT Group, to finance commercial loans, equipment contracts, FFELP student loans, aircraft or rail leases and even private student loans. CIT will pay Goldman 2.85% and may not include any securities backed by home mortgage loans. It is a 20-year facility, but with a 15-year average weighted life.

"We view this transaction as another important milestone in achieving our desired financing profile," Chairman and CEO Jeffrey Peek said in a company statement.

CIT has spent much of the year shoring up its balance sheet. The company so far has sold $1.4 billion of asset-based loans and raised $1.6 billion through common and preferred stock offerings. It is in the process of selling $500 million worth of aircraft and is also trying to sell its $4.5 billion rail business, which seems to have generated interest among buyers.

The finance firm has $8.1 billion of debt maturities, $1.3 billion of commercial paper outstanding, $2.1 billion of bank lines that must be paid down during 2008 and $1.5 billion in aircraft purchases. But CIT has managed to cut 575 jobs as it addresses its problems head on.

Goldman Sachs analyst James Fotheringham had a neutral rating on the stock and recently lowered his price target to $10 from $13. He also cut his estimates since he didn't see the latest capital raise as a long-term funding solution.

CIT shares recently were up 6% to $9.74, after hitting a high of $10.56. The stock is down 84% over the last year.

Its competitors are similarly challenged. KKR Financial(KKR Quote) offered 34 million shares of stock in April and is down 54% on the year. General Electric's(GE Quote) commercial finance division saw its profits decrease by 20% in the first quarter, hitting the parent company's stock. CapitalSource(CSE Quote) is also down from its 52-week high of $26.32, trading at $16.43.