CIT sheds housing assets

Manufactured home, mortgage businesses to fetch $1.8 billion

By SHARA TiBKEN
CIT Group Inc., shedding assets to raise cash, said it reached sepa rate agreements to sell its home- lending business and manufactured- housing portfolio for $1.8 billion.
"These sales complete our exit from all home -lending business, re moving the uncertainty surround- ing this asset class and advances our strategic transformation into a company focused entirely on corn- mercial finance," said Chairman and Chief Executive Jeffrey M. Peek.
The company's shares surged on the news, rising 15%to $7.82 early Tuesday afternoon on the New York Stock Exchange.
The cost of protecting CiT bonds fell after the announcement. Credit- default swaps, privately negotiated contracts that allow investors to hedge credit risk, implied that it would cost $715,000 to protect $10 million of CIT bonds annually for five years, according to interdealer broker PhoenixPartners. That was down from the $770,000 at Monday's close.
The commercial-finance com pany agreed to sell its home-lending business to hedge fund Lone Star for $1.5 billion and its $470 million manufactured-housing portfolio to Vanderbilt Mortgage&Finance Inc. for $300 million. Lone Star also agreed to assume $4.4 billion of debt and other ilabilities in the sale, expected to close this month. The servicing-platform transfer should be complete in the first quarter.
CiT said the home-lending busi ness Consists of $9.3 billion hi as- Sets and related servicing options, and the Company expects to record a $2 bfflion loss on the deal. The seg ment also is projected to have had a second-quarter loss of $350 million, more than double the first-quarter loss. The operations have been be- set by increased delinquencies and charge-offs.
Most analysts view the actions as favorable but that CiT isn't out of the woods yet. BMO Capital Mar- kets said it still views CIT's "funding risk as being paramount, particu larly given CIT's $7 billion in net un funded commitments that it must find a way to fund if drawn upon."
After being hammered by the credit crunch this spring, CIT reiter ated Tuesday it has made strides in an effort to "strengthen its balance sheet and improve and diversify its liquidity and funding, as it positions itself for long-term success and prof itablilty."
Since April 1, the company has moved to strengthen its balance sheet by raising $1.6 billion in new capital, retiring approximately $5 billion in debt, completing financ ings of about $1.5 bfflion and selling more than $2 billion of assets at close to book value.
CIT reiles on its ability to raise money in the capital markets in or- der to pay for the loans it makes to businesses and individuals. But the company's access to funding evapo rated in March, prompting the cen tury-old firm to drain a $7.3 billion credit line. Since then, CIT had been looking to slim down and line up a financial partner to provide a steady stream of inexpensive fund- 1ng.