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By Ronald Fink
CIT's second quarter results contain some good news for investors, borrowers and others interested in the fate of the troubled $60 billion-in-assets lender to medium-sized businesses. According to an analysis of the quarterly SEC report that CIT filed on Wednesday, the value that the company may be able to realize from the 307 commercial aircraft and 103,300 railcars it leases to operators climbed during the quarter.
The business is CIT's only profitable one and produced $49 million in net income during the quarter.
That helped staunch the decline in how much CIT creditors can expect to recover from a potential bankruptcy filing, and so might make them more willing to arrange financing for a reorganization, analysts say.
The trouble is that CIT is running out of time, as its overall projected cash flow is deeply negative and many of its liabilities are coming due shortly.
"The problem for CIT is this business is capital intensive in an environment where CIT has limited access to capital," wrote Adam Steer and David Hendler of CreditSights in a note published after the filing.
After comparing the quality of its railcars to those of its closest competitor in that segment, GATX, Steer and Hendler estimated that CIT's assets could be worth as much as $3.5 billion. That was $200 million, or 6 percent, more than they previously estimated. And they estimated CIT could generate approximately $2.5 billion in cash net of debt if it monetized the business through a sale or financing.
Because others in the aircraft business are also under pressure to sell their assets, the analysts compared CIT's assets in that segment to those of its weakest competitor, Aircastle, and concluded that CIT could generate $5.7 billion in cash from that business. That was up about $400 million, or 7 percent, from their previous estimate.
Even so, deterioration in other asset values led CreditSights to reduce the amount that lenders could expect overall from CIT's exit from Chapter 11 by a penny, to 23 cents on the dollar. Without the relative strength of CIT's transportation business, however, they could expect even less.
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