embattled CIT
Second quarter results for beleaguered giant US commercial
financier CIT Group reported a steep drop in operating income for
the second quarter, but reportedly it has done enough to repair its
balance sheet to meet liquidity needs through to the end of
2009.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The company reported a second-quarter loss of $2.07bn before
preferred dividends, or $7.88 a share, compared with a loss of
$127m, or $.70 per share, a year earlier.
Net income from continuing operations fell to $48.1 million, or
$0.12 per share, from $352.1 million, or $1.76 per share, for the
comparable 2007 quarter.
It has sold more than $2bn of assets at roughly book value over
the past two months and has others on the auction block, including
its CIT Rail business, which owns and leases railcars and is worth
roughly $3bn. CIT chief executive Jeffrey Peak said the company is
continuing to explore “a full range of options” for its rail
transportation leasing business – including a potential
disposal.
The CIT aerospace portfolio is pretty stable with a net
investment of $2.8bn in Europe, while the company’s vendor finance
arm has $15.4bn of managed assets on its books against $16.6bn a
year before.
During the quarter, CIT raised $1.6bn through a common and
preferred stock sale and sold $2bn of assets. It also secured a
$3bn facility from Goldman Sachs, paying a 2.85 per cent annual fee
on the facility’s maximum amount, or $85.5m per year, in addition
to the Libor-based rate it pays on the financing it uses. CIT will
be able to access up to $3bn for the first 10 years, with the
facility’s maximum amount dropping by $300m per year in each of its
last 10 years.
The company’s liquidity issues arise mainly from the
deterioration of its mortgage financing business. While CIT sold
its home lending and manufactured housing portfolios in early July
– after incurring a $2.1bn loss in the second quarter – it sold
home lending at a discount to book.The cash from the sale did not
pay down all of the allocated debt.With $3bn of debt remaining,
that leaves interest expense of $43m that has to be covered by the
rest of the operation.
Besides the loss from the sale of its home lending unit, other
one-time items impacting CIT’s results included a $60m increase to
reserve for credit losses, a $17m restructuring charge, and $69.1m
to exit some real estate deals.
Furthermore, the company faces $6.2bn in maturing debt in the
second half and continuing interest expenses from outstanding debt
of its discontinued home lending operation.
That said, CIT paid down a $2.1bn bank line late July, three
months before it comes due, the company said on Monday. The early
payment, according to analysts, signals the company’s funding
problems are ebbing, after the credit crunch forced it to draw down
on its full $7.3bn of bank lines in March.
After the payment CIT will have $5.2bn of borrowing outstanding
from its U.S. bank lines, maturing in April 2009, April 2010 and
December 2011.
The company ended the second quarter with $7.5bn of unrestricted
cash and $2.2bn available under securitisation facilities.
Paul Collett
