CNN Money is reporting CIT taps $7.3 billion credit line.
Commercial and consumer lender CIT Group Inc. said Thursday it tapped its $7.3 billion credit lines to repay debt and finance its commercial lending and is seeking additional funding sources as access to capital has dried up.
CIT Group said it cannot get capital from other sources amid continued deterioration of the credit markets. Aside from looking for new funding, CIT Group said it would also consider selling non-strategic assets and business lines to help raise cash.
Shares of CIT Group (CIT, Fortune 500) tumbled in Thursday afternoon trading, falling $4.39, or 37.7%, to $7.25. Earlier in the session, shares hit a 52-week low of $6.75.
“Our decision today is a result of the protracted disruption in the capital markets as well as recent actions by the rating agencies,” Jeffrey Peek, CIT Group’s chairman and chief executive, said in a statement.
Earlier this week, both Moody’s Investors Service and Standard & Poor’s cut some of CIT Group’s credit ratings because of the company’s reduced financial flexibility due to the credit market turmoil. On Wednesday, Fitch Ratings put its ratings for CIT on review for possible downgrade.
Moody’s cut CIT Group’s issuer rating, while S&P; cut its counterparty rating. Both the ratings remained investment grade.
“Drawing down the bank lines would raise concerns about the company’s longer term viability,” Kathleen Shanley, an analyst at independent bond research firm Gimme Credit LLC, said in a statement before CIT disclosed it would draw on its lines.
CIT Daily Chart
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Bloomberg is reporting a “Disruption” at CIT
CIT drew on its $7.3 billion of emergency credit lines today after credit-rating downgrades left it unable to finance itself with commercial paper, or debt due in nine months or less. Chief Executive Officer Jeffrey Peek said the “protracted disruption” in capital markets may also force the New York-based company to sell assets.
“Once you tap your backup bank lines and the credit crunch is still as bad as it is, you’re on a slippery slope” with credit ratings companies, said Richard Hofmann, an analyst at CreditSights Inc. in New York.
The company’s $500 million of 5.6 percent notes due in 2011 slumped to as low as 68 cents on the dollar, according to Trace, the Financial Industry Regulatory Authority’s bond-pricing service. The notes last traded at 93 cents on the dollar on Feb. 26. The yield widened 15.7 percentage points more than Treasuries with similar maturities, from 4.7 percentage points.
Banks including Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Barclays Plc gave CIT four separate credit lines, according to regulatory filings last month. The lines are typically given as back up credit in case a company can’t finance itself in other markets such as commercial paper.
Once a company draws on the lines, banks are required to set aside capital to cushion themselves against potential losses.
Kiss another $7.3 Billion Goodbye
Somehow Moody’s and the S&P; consider CIT to be investment grade. I sure don’t. And whoever lent CIT $7.3 billion (or whatever portion thereof) can likely kiss it goodbye.
Mike “Mish” Shedlock
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