Thain's CIT Seeks $3 Billion Term Loan Led by Bank of America to Cut Costs
John Thain, CEO of CIT Group Inc. Photographer: Jonathan Fickies/Bloomberg
CIT Group Inc., the commercial lender that emerged from bankruptcy in December, will meet with lenders this week to arrange $3 billion of first-lien debt as Chief Executive Officer John A. Thain seeks to reduce costs on some of its loans by almost 50 percent.
Bank of America Corp., Deutsche Bank AG and Morgan Stanley will hold a meeting July 29 in New York to market the five-year loan, according to people familiar with the transaction. Initial price guidance on the proposed debt is 5 percentage points more than the London interbank offered rate, with a 1.75 percent Libor floor, said the people, who declined to be identified because the terms are private.
CIT, which posted its second straight quarterly profit since exiting Chapter 11 protection, needs to lower its cost of funding after arranging the previous loan last year at rates as high as 13 percent to avoid collapse. Thain, who was named chief executive officer in February, has been shrinking the New York- based lender and trying to raise less-expensive funds, such as bank deposits.
“We are continuing to pay down our high-cost debt and we’re also continuing to access the capital markets for lower cost funding,” Thain said today in a conference call with analysts and investors to discuss the New York-based bank’s second-quarter results.
CIT plans to repay $1 billion of the $4 billion first-lien loan outstanding and then “begin the process of refinancing with a new secured term loan,” Thain said.
Extension Fees
Lenders will have until Aug. 5 to submit responses to banks, the people said, who declined to be identified as the terms are private. The financing will consist of new lender commitments, as well as investors that agree to amend and extend existing portions of the company’s first-lien debt, the people said.
CIT is offering to pay lenders willing to extend their share of the $3 billion so-called tranche-1 loan a 2.25 percent fee, the people said. Investors that agree to push out maturities on a $4.5 billion tranche-2 loan would get a 2 percent fee, the people said.
The company’s tranche-1 loans have an interest rate 10 percentage points more than Libor, with a 3 percent floor on the lending benchmark, according to data compiled by Bloomberg. Libor is the rate banks charge each other for loans. CIT pays a margin of 7.5 percentage points over Libor, which has a 2 percent floor, on the tranche-2 loan, Bloomberg data show.
Lower Interest Rate
The minimum interest rate on the new debt, including the lending benchmark floor, would be 6.75 percent, compared with a minimum rate of 13 percent on the tranche-1 loans and 9.5 percent on the tranche-2 loan.
CIT’s 7 percent notes due May 2017 rose 0.125 cent to 94.375 cents on the dollar as of 2:31 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The senior-secured second-lien debt gained 16 percent since December 2009 to yield 8.09 percent.
Under the current pricing guidance, the new term loan would yield about 7.4 percent.
CIT will offer to sell the debt at 98 cents on the dollar, reducing proceeds for the company and boosting the yield for investors, the people familiar with the talks said.
The proposed term loan would have a soft-call protection of 102 cents during the first year and CIT would have to pay a 1 cent premium over face value to refinance the debt during year two, the people said.
Curt Ritter, a spokesman for CIT, declined to comment on the terms of the refinancing.
Moody’s Investors Service rates CIT’s senior secured debt B3, six levels below investment grade, and Standard & Poor’s has the company’s credit rating at B+, four steps below investment quality, according to Bloomberg data.
To contact the reporter on this story: Emre Peker in New York at epeker2@bloomberg.net
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