CIT to Cut Bond Sales With Investment Grade in Sight, Votek Says
CIT Group Inc. (CIT), the biggest junk-bond issuer this year, will limit debt sales and focus on increasing deposits as the commercial lender tries to gain investment-grade status, according to Treasurer Glenn Votek.
The century-old company, which is rated four levels below high grade at B1 by Moody’s Investors Service and one step higher at BB- by Standard & Poor’s, has offered $9.75 billion in debt this year, more than any corporation since at least 1999, according to data compiled by Bloomberg.
CIT plans to increase deposits made through its online banking platform to account for 35 percent to 45 percent of total funding, up from as much as 27 percent currently, Votek said in a telephone interview. Increasing deposits is essential for the New York-based lender, which completed its bankruptcy reorganization in December 2009, to receive a boost to its credit ratings.
“You’re not going to see us doing $10 billion a year; we’ll be a smaller unsecured issuer,” Votek said. “It’ll be more opportunistic in nature. Having a meaningful deposit platform that can provide a stable source of funding will be critical to us to gain an investment-grade rating.”
CIT was able to return to the unsecured debt market in March after bondholders had previously demanded collateral to buy new securities following its restructuring. The remainder of the company’s funding needs after accounting for deposits will be split equally between unsecured debt and asset-backed securities, according to Votek.
Unsecured issuance makes up 40 percent of CIT’s capital structure, Votek said. When the bank was coming out of its reorganization, bank deposits accounted for just 10 percent, he said.
Continuing to lower obligation costs is also important for attaining high-grade status, Votek said. The weighted average fixed coupon on CIT’s bonds has fallen to 5.17 percent from 6.96 percent in the third quarter of 2010, Bloomberg data show. The cost of funding may drop further as CIT accepts more deposits, he said.
“I think CIT is definitely moving toward investment grade,” Mark Palmer, an equity analyst in New York at trading firm BTIG LLC, said in a telephone interview.
Votek said more liability management would not make financial sense, even though yields are attractive for borrowers.
“If you look at where our debt complex is trading now, it would be very uneconomic to take out any of that debt,” he said. “You’d be hard-pressed to find a bond of ours in our debt complex that is trading below 104” cents on the dollar.
CIT has refinanced or eliminated almost $31 billion in debt since emerging from bankruptcy, according to an Aug. 20 statement. Its nearest bond maturity is $1.3 billion in 2014, according to Bloomberg data. No more than $3 billion is due in any given year through 2024, Votek said.
The company’s $1.25 billion of 5 percent notes due August 2022 last traded at 104.8 cents on the dollar to yield 4.4 percent on Sept. 28, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
CIT has $7.7 billion in bonds due between 2017 and 2020, Bloomberg data show, with about $3 billion of that maturing in 2017.
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