CIT Group Ratings Downgraded as Bankruptcy Looms
CreditSights today downgraded CIT Group (NYSE: CIT) as it questioned whether the company has a viable business model to survive long-term, even if it seeks bankruptcy protection, as reported in today’s Wall Street Journal. The WSJ also said Moody’s downgraded CIT by four notches to near junk status. Standard & Poor’s and Fitch Ratings had already downgraded CIT to BB-.
CreditSights said “The company sought to have a more active dialogue with CreditSights after a few months of radio silence and to give CIT’s views on a few points that it believed could have been made clearer.”
However, CIT’s efforts appear to have done nothing to change CreditSights’ negative view of the business, most recently expressed in its July 7 Spotlight on CIT: Time to Head for the Hills?
In a new report, CIT: Reaches Out – Revisit Recovery/Bankruptcy, CreditSights notes that “the company’s liquidity constraints have already placed significant pressure on the franchise., With this in mind, we believe CIT may be weighing a bankruptcy filing in order to proactively protect its franchise value.”
A bankruptcy is not a cure all for CIT. On one hand, CIT could use bankruptcy as a means to restructure its debt profile to a more manageable size. Even if it does as such, we question the ability for the company to emerge from bankruptcy with a viable ongoing business.
“Ultimately, if CIT intends to write new business post bankruptcy, it needs a viable funding model and a trip into bankruptcy does not help on that front. Given that there could be regulatory intervention at the bank level that could halt the company’s access to the deposit market, if anything a bankruptcy could set CIT back on its ability to fund new business.”
“In terms of the impact to the middle-market companies to which CIT lends, should CIT cease lending, we believe that any of its lending done to creditworthy clients could be assumed by a bank. Further, we believe a major bank could lend at better terms than CIT can by virtue of having access to cheap deposit and TLGP funding. “
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