DBRS Takes Various Rating Actions on CIT Group Inc.

DBRS has today downgraded the Long-Term Debt ratings of CIT Group Inc. and its related subsidiaries (CIT or the Company) to CC from CCC. Concurrently, DBRS has downgraded the Company’s Floating Rate Senior Notes Due August 2009 (ISIN #US125581CR74) to C from CCC. CIT’s Issuer Rating remains CCC and its Short-Term Instruments rating remains R-5. All ratings remain Under Review with Negative Implications, where they were placed on April 24, 2009.

Today’s rating actions follows CIT’s announcement that it has entered into a $3.0 billion secured loan facility, commenced a cash tender offer for certain debt and initiated a recapitalization plan that will include a series of exchange offers.

Indicating that default is imminent, the $1.0 billion Floating Rate Senior Notes (the Notes) due August 17, 2009 were today downgraded to C from CCC. This action reflects the announced cash tender offer for the Notes. Under the terms of the offer, bondholders will receive $800 for each $1,000 of principal amount of the Notes tendered. Bondholders tendering their Notes on or before July 31, 2009, will receive $825 per $1,000 of principal of the Notes tendered. Importantly, CIT indicated that failure to receive tenders of at least 90% of the aggregate principal of the Notes outstanding would result in the offer not being completed, which may lead to the Company seeking protection under the U.S. Bankruptcy Code. DBRS views the tender offer as coercive and therefore a default under DBRS policy. DBRS will lower the rating to D upon completion of the exchange. Under DBRS policy, certain securities are typically placed in a default status, if an exchange results in a final outcome that leads to terms that are disadvantageous to bondholders or effectively a forced consent exchange because failure to do so would likely lead to an issuer’s inability to pay.

In addition, CIT’s announcement indicated that a comprehensive series of exchange offers will be forthcoming as part of the Company’s recapitalization plan. As such, DBRS has lowered the Long-Term Debt ratings on all remaining CIT long-term debt to CC, given DBRS’s anticipation that further exchange offers are likely to be coercive and disadvantageous to bondholders.

CIT’s Issuer Rating remains Under Review with Negative Implications as the Company’s earnings ability remains weak. This weakness is illustrated in CIT’s regulatory filing today disclosing that the Company anticipates reporting an outsized loss of $1.5 billion for the second quarter of 2009. The Company’s liquidity profile is severely pressured and funding remains challenged. In DBRS’s view, the announced credit facility only provides liquidity relief in the immediate term absent a successful debt restructuring as discussed above. Moreover, liquidity is further stressed by the announced Cease and Desist order recently issued by the FDIC (the Orders), which among other actions, prohibits CIT Bank from increasing the amount of brokered deposits above the $5.5 billion held as of July 16, 2009. DBRS views this condition as further constraining the Company’s financial flexibility and reducing the likelihood that the Company will be successful in transitioning from a capital markets funded business to a diversified deposit funding model.

DBRS’s review will include an assessment of the Company’s comprehensive restructuring plan. The review will consider any debt-for-equity exchange offers and their impact on existing bondholders. Moreover, DBRS will review the plan’s impact on CIT’s future earnings power, liquidity profile, capital base and funding strategy. In addition, DBRS will assess the extent that the Company’s franchise has been weakened by the recent negative headlines and limited new lending capacity. DBRS’s ratings have been underpinned by the strength of the Company’s franchise. Further, DBRS believes that the recessionary environment will continue to drive the Company’s credit costs higher pressuring profitability.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is Corporate (Financial Institutions) rating.