CIT Group Preserves $2.6 Billion Income-Tax Offsets for Potential Acquirer
CIT disclosed the move in a filing with the Securities and Exchange Commission dated Sept. 15.
“The decision indicates that the board would be amenable to selling the company, perhaps in the near term,” said Robert Willens, a tax and accounting analyst at Robert Willens LLC in New York.
CIT has $2.6 billion of tax benefits known as net operating loss carryforwards from before the company emerged from bankruptcy on Dec. 10, the lender said in a quarterly report filed Aug. 9. Under the tax code, the company could have chosen to use an unlimited amount of the benefits in any year to offset income. The benefits would have been eliminated if CIT were sold within two years of its emergence from bankruptcy, according to the Sept. 15 filing.
Instead, CIT filed its tax return under a provision that limits the amount of taxable income it can offset each year to about $230 million and preserves the benefits if the company is sold within two years, according to the Sept. 15 filing and CIT’s quarterly filing.
CIT believes the move “has a higher potential economic value and it removes the risk of losing the $2.6 billion NOL in the event of a tax-ownership change,” Curt Ritter, a CIT spokesman, said in an e-mail.
CIT is unlikely to make enough money on its own over the next couple of years to use all of the benefits, Michael Taiano, a New York-based analyst at Sandler O’Neill & Partners LLP, wrote in an Aug. 26 report.
The company also amended its certificate of incorporation to remove an article limiting certain stock transfers that could have jeopardized the use of the tax benefits, the company said in the Sept. 15 filing.
CIT fell 18 cents, or 0.5 percent, to $38.91 in composite trading on the New York Stock Exchange at 9:35 a.m.