CIT Sells $1.5 Billion of Stock

NEW YORK (Reuters) – Commercial finance company CIT Group Inc (CIT.N: Quote, Profile, Research) on Tuesday said it sold $1.5 billion of common and convertible preferred stock, 50 percent more than planned, raising cash as it struggles with the global credit crisis.

The offerings dilute the holdings of existing shareholders, and CIT shares were off $1.75, or 13.7 percent, to $10.99 in morning trading on the New York Stock Exchange.

Like many other finance companies that cannot borrow from the Federal Reserve, CIT has been scrambling to raise cash. It has said it agreed to sell more than $5 billion of assets and loan commitments, and has identified another $2 billion of loan assets it may finance or sell.

“We are surprised by the timing, particularly given the company's progress in improving its liquidity position through asset sales,” wrote Sandler O'Neill & Partners LP analyst Michael Taiano.

CIT said it sold $1 billion of common stock, comprising 91 million shares at $11 each. It also sold $500 million of preferred stock carrying an 8.75 percent dividend and convertible into CIT stock at $12.65 per share.

The company said net proceeds total about $1.44 billion. It said it may increase both offerings by 15 percent, potentially increasing gross proceeds to about $1.73 billion.

CIT on Thursday posted a $257.2 million first-quarter loss, slashed its dividend 60 percent and said it may sell its railcar leasing business to raise cash.

CIT has said it has enough cash to meet its obligations this year. Last month, however, it drew down its $7.3 billion of bank credit lines. 

Taiano said the capital raising could foreshadow sales of CIT's remaining subprime mortgage and student loan portfolios.

“Assuming those assets would be sold at a considerable discount, we believe management may be positioning the company to absorb a sizable charge to its capital base,” he wrote.

A CIT spokesman was not immediately available for comment.

Credit Suisse analyst Moshe Orenbuch on Tuesday lowered his 2008 profit forecast for CIT to $1.80 per share from $2.75, and said the offerings are about 25 percent dilutive.

New York-based CIT said it intends to use net proceeds from the stock offerings for general corporate purposes, including payment of $8 million of preferred stock dividends and $23 million of interest on junior subordinated notes.

Citigroup Global Markets Inc, JPMorgan, Lehman Brothers Inc and Morgan Stanley arranged the offerings, CIT said.

By Jonathan Stempel

 (Editing by Mark Porter and Maureen Bavdek)