CIT Refinancing Debt at Lower and Lower Rates

CIT Group Inc. (NYSE: CIT) is getting it borrowing costs and its cost of capital lower and lower under the leadership of John Thain. While this company once went bankrupt due to a lack of available capital and due to its costs of borrowing going up into the stratosphere, CIT has been issuing new debt to pay down its old debt. The rates are historically dirt cheap for CIT and the redemption of some 7% notes this morning is said by the company to have reduced its funding cost by about 250 basis points.

Last week the company sold debt for less than 5% as the high-yield appetite has been insatiable as institutional investors and retail investors keep reaching for yield. CIT is borrowing at rates of only about 300 basis points over comparable Treasuries at this point after cutting and reducing somewhere close to $31 billion of debt over the last three-year period.

CIT has lowered its long-term debt down to roughly $23.5 billion as of the end of the June quarter, and that is nearly one-third lower from the end of 2010. CIT shares are up 9.7% so far in 2012.

24/7 Wall St. has warned of a bubble forming in high-yield bonds, although this is still a subject under debate among analysts and market pundits, as Treasury yields are expected to remain exceptionally low until at least the end of 2014. As far as this morning’s announcement, CIT has now said that all of the finance company’s restructuring-related debt will have been eliminated or refinanced.

JON C. OGG