CIT Group Halts Preferred Dividends

CIT Group saw certain series of preferred shares fall Friday, after the company said it would stop paying dividends on most of those securities to improve liquidity.
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NEW YORK (

TheStreet

) -- Preferred shares of

CIT Group

(CIT) - Get Report

fell sharply on Friday after the company said it would stop paying dividends on most of those securities to improve liquidity.

The business lender's Series-A preferred stock was tumbling 26% at $2.85, while Series-C was down 10% at $7.12. Its preferred-equity units were also down 2.4% at $8.78, although the decision to halt dividend payments will not affect those securities.

CIT's common shares were soaring 13% earlier in the day, after the dividend news emerged, but recently eased off those gains, trading 3 cents higher at $1.65.

The company said the dividend halt would "improve liquidity and preserve capital" as the restructuring process continues, but did not provide an estimate on how much cash it would save.

The dividend announcement was CIT's latest in a series of steps to restructure its capital configuration, after the Federal Deposit Insurance Corp. declined to give the company access to a program that would guarantee company debt.

CIT securities, including preferred stock, have suffered downgrades in recent weeks as the lender teetered on the brink of bankruptcy. If the firm were forced to liquidate, preferred shareholders would be better protected than common stock investors, but not as much as bondholders, who received 87.5 cents on the dollar in a

debt restructuring agreement that was solidified on Monday.

The struggling lender confirmed on Friday that at least 58% of its outstanding senior notes eligible for a repurchase offer had been tendered, thereby meeting the minimum condition to go forward with that restructuring move. The tender offer will expire next Friday at midnight.

CIT also said that it has drawn down the final $1 billion in borrowings from a credit facility whose terms were amended with major bondholders to keep the company afloat. CIT is using "a substantial amount" of that sum to support small- and middle-market businesses that are seeking new loans.

Although major banks like

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Wells Fargo

(WFC) - Get Report

,

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

have received infusions of capital and access to programs that foster liquidity and make borrowing cheaper, CIT was given a cold shoulder when it asked regulators for help last month.

The decision seemed odd, given extreme measures to help firms like

American International Group

(AIG) - Get Report

,

General Motors

,

Chrysler

and

General Electric

(GE) - Get Report

, but CIT has seemed to prove that the private market is once again capable of handling a severe crisis at a smaller firm.

-- Written by Lauren Tara LaCapra in New York. Follow me on Twitter at www.twitter.com/TSCLauren

.