S&P Raises Long-Term Issuer Credit Rating on CIT
Standard & Poor’s said it raised its long-term issuer credit rating on CIT to BB from B+, saying the company’s outlook is stable.
The rating action reflects CIT’s efforts to unencumber a large portion of its balance sheet, significantly lower its funding costs and stabilize its business profile, S&P said.
The stable outlook reflects our expectation that CIT will reduce its funding costs and improve core profitability gradually over the next year by issuing additional unsecured debt and increasing deposits. S&P also expects the company to accelerate earning asset growth in 2012, but to maintain the tighter underwriting and risk management policies it has adopted since emerging from bankruptcy.
On March 9, 2012, CIT will complete the redemption of its remaining $4 billion of Series A debt, unencumbering a substantial portion its balance sheet and further reducing its funding costs. This redemption will trigger the removal of the security package from CIT’s revolving credit facility and Series C notes, per those instruments’ covenants, leaving them unsecured. Pro-forma for the redemption and excluding CIT’s commercial bank subsidiary, secured debt would have accounted for less than half of total debt at Dec. 31, 2011, down from almost 100% a year earlier. (The remaining secured debt relates to structured funding vehicles.) Excluding CIT Bank, the company’s unencumbered assets will be well in excess of its unsecured debt.
S&P said it could raise the rating within a year if core profitability improves faster than it expects via reduced funding costs. The rating could also benefit from continued progress in reducing its reliance on wholesale funding.
Conversely, S&P said it could lower the rating if CIT’s core earnings deteriorate or it relaxes its credit standards in order to facilitate rapid growth. In addition, the rating could come under pressure if CIT strays greatly from its core lending platforms, reports outsized asset growth in new areas, or if its provisions or charge-offs increase materially.
To read the full S&P news release, click here.