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16Jul09


CIT assets attractive but only to bargain hunters


Many of CIT Group Inc's businesses, including trade and transportation finance, could be of interest to potential buyers as the commercial lender stares at the possibility of bankruptcy.

But this is a bad market in general for CIT to be selling any assets as the economic downturn has hurt many of its markets badly, driving down values.

Disposals under distress would not only draw firesale prices but could also lead to legal challenges down the road, investment bankers said.

The chances of a bankruptcy were heightened on Wednesday when CIT, a major lender to small- and mid-sized U.S. businesses, said the government had told the company that it was not going to provide additional support and that bailout discussions had ceased.

In a report which cited a source close to the company, CNBC said CIT was likely to file for Chapter 11 protection from creditors on Friday.

CIT's trade finance business is one of its most valuable units, a source close to the lender said.

"It's also the unit that the government has the most interest in preserving for the health of the small business economy," the person said.

The source listed JPMorgan Chase & Co as the most logical suitor for the unit. JPMorgan has the balance sheet to finance the unit and a lot of experience in asset-backed lending, the source said.

General Electric, a smaller competitor in that space, and private equity firms could also look at it, he added.

CIT's corporate finance business could also hit the market.

Logical suitors there would include banks such as Royal Bank of Canada or Wells Fargo & Co, the source added.

The source and other bankers spoken to about CIT's situation declined to be identified because they weren't authorized to speak publicly or were concerned about client confidentiality.

Bankers also said CIT's transportation finance businesses -- which include rail car and aircraft leasing -- are attractive for buyers.

Its rail car leasing business, which the lender tried to sell last year, could draw competitors such as GATX Corp and First Union Rail, a part of Wells Fargo, as well as foreign buyers, bankers said.

GATX, a lease financing company, was interested in buying the unit last year. The rail portfolio was on CIT's books at $4.8 billion at the end of last year.

CIT's aircraft leasing business, which had a portfolio valued at $8.1 billion as of Dec 31, could draw interest from rivals such as AerCap Holdings, Genesis Lease Ltd and Aircastle Ltd, bankers said.

Discounted Prices

Even though many of CIT's businesses are attractive on their own, the lender will probably be forced to sell them at discounted prices, these experts said.

Private equity was unlikely to be a bidder for many of CIT's main assets, one private equity source who declined to be named said. The business model of the firm -- having a high cost of capital -- would put such buyers at a disadvantage.

And then there is the dreadful state of many of the markets that CIT serves.

Aircraft leasing, for instance, even with many potential suitors, faces severe headwinds, as rival American International Group Inc is finding out in its attempts to sell International Lease Finance Corp.

"Aircraft values are depressed and (some) airlines are in bankruptcy and for that reason even though it is a very good asset, which should be the first one sold by CIT to alleviate any of its liquidity issues, it might be harder than usual," said Grant Tolson, a managing director at boutique investment bank Sonenshine Partners.

Moreover, buyers are likely to be reluctant to buy any unit from CIT if they expect the lender to file for bankruptcy, bankers said.

Selling any of the businesses at a discounted price before filing for bankruptcy could also expose the buyer to clawback attempts by creditors in court under the so-called "fraudulent conveyance" provision, Tolson said.

"There were opportunities to do things when the markets were better," said another financial institutions banker.

"It's the same thing as AIG, though. Who is buying that stuff?" he said in reference to the bailed-out insurer's difficulty selling assets at anything like the prices they were once valued at.

[Source: By Paritosh Bansal and Jui Chakravorty Das, Reuters, New York, 16Jul09]

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