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As we emerge from a winter of uncertainty within the financial markets everyone is looking for the green shoots of business optimism, however it looks like we will be in for a continued period of further bad news if the March 20^th announcement from CIT is a sign.

Announcing “liquidity actions”, Jeffrey Peek, CEO of CIT Group arranged a call for analysts to ease fears of financial meltdown following recent ratings agency downgrades and tougher economic conditions. The stock price had plummeted to a 52 week low of $6.45, well down on the $61.47 peak of June 07.

Peek announced the drawing down of 4 facilities out of a group of 40 bank funding lines available to the business. In total CIT, drew down $7.3 bn dollars in funds all of which had differing maturities.

• $2.1 bn is due Oct 08
• $2.1 bn is due Apr 09
• $2.1 bn is due Apr 10
• And the remaining $1 bn is due Dec 11.

Although the bank facilities are not the preferred funding method, CIT admitted that the issuance of commercial paper was becoming more protracted due to the economic climate and that they needed to act to support debt maturities on existing commercial paper as well as support ongoing originations. CIT had already eaten through a good deal of their year end cash position, the $6.3 bn at year end reducing to circa $2bn at the time of the March 20^th call.

Joe Leone, CFO, said these new drawings should provide enough cover for the balance of the year at origination levels flat versus last year.

Pricing on these bank facilities is based on a ratings grid and today are charged at LIBOR plus 50bps with the potential for pricing to rise to around 100bps if there are further downgrades.

Peek moved quick to dispel further concern by stating that the drawing down of these facilities had ”nothing to do with the health of our commercial finance businesses, our broad based asset quality is quite solid and new business is quite plentiful”

Peek continued to say that by drawing on these facilities they wanted to demonstrate the strong liquidity within the business, maximising operating flexibility and ensuring CIT’s near term funding obligations.

So what next for CIT? Again Peek provided the answers to this question. “Given the current economic climate we need to run a smaller company”. Based on answers to various analysts questions on the call, CIT would evaluate the sale of both assets and discreet business lines that were viewed as non-core. Vendor Finance and Equipment Finance were singled out as businesses with solid underlying asset bases and were seen as core commercial finance franchises. In total CIT expect to make upto $7bn of asset sales in addition to looking for “deposit rich, asset poor” institutions to develop long term funding partnerships.

With 26% of sales outside of the US, 11% (of Global Revenues) in Europe, 6% in Canada and 3% in both AsiaPac and Latin America, it was unclear as to whether the non-core tag had geographical considerations although my guess would be that Equipment and Vendor finance business would still be maintained.

As these banking facilities were subject to specific ratings hurdles at the time of drawing, the actions in March may prove to have been a shrewd if not altogether planned for piece of fiscal juggling as at least CIT have now given themselves some time to resize their operations with mid term funding certainty whilst others are still fighting the liquidity storm. If CIT had waited any longer and with economic confidence so low, they may have found their funding partners, many of which are experiencing their own issues, less forthcoming with those funds.

With first quarter earnings to be announced on April 17, all eyes will be on CIT and the ratings agencies response, but rest assured this won’t be the only big name required to reshuffle their deck to stay in the game.