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CIT Redeeming $4 Billion of Debt in Quest for Investment-Grade

CIT Group Inc. plans to redeem almost all of the $4 billion of debt tied to its exit from bankruptcy as the small-business lender led by John Thain seeks a return to investment-grade credit ratings.

CIT will buy back $1 billion of its 7 percent Series A second-priority secured notes due in 2016 and about $2.9 billion of the debt maturing in 2017 on March 9, the New York-based company said in a statement today. Repaying the debt will make the company’s outstanding Series C notes and its revolving credit line unsecured, leaving the lender with a “largely unencumbered balance sheet,” Thain said in the statement.

“This is a significant milestone for CIT,” Thain, chairman and chief executive officer of CIT, said in the statement. “These efforts will improve our financial flexibility as we continue to provide much needed financing to the small business and middle market sectors.”

The redemption will bring to $22 billion the amount of first-lien and second-lien debt CIT has eliminated or refinanced since the start of 2010, according to the statement. CIT, which is recovering from a bankruptcy that wiped out $2.3 billion in government bailout money, is graded B2 with a “stable” outlook by Moody’s Investors Service and B+ with a “positive” outlook from Standard & Poor’s.

Once the Series A debt is fully repaid, liens on a revolving line of credit and the Series C notes “fall away” so that debt becomes unsecured, Chief Financial Officer Scott Parker said in a Nov. 16 conference call. That’s part of the company’s plan to regain investment-grade credit ratings, he said.

CIT issued $3.25 billion of bonds on Feb. 2 to help pay back the higher-cost and restrictive debt, according to data compiled by Bloomberg.

Investment-grade ratings are those Baa3 and higher by Moody’s and BBB- and higher by S&P.

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