Morgan Stanley Comments On CIT Group, Debt Restructuring

CIT Group's CIT $2bn secured debt issuance is in line with Morgan Stanley's view that it will make significant progress restructuring high-cost debt in 2011-2012. It pulls forward Morgan Stanley's Series A restructuring expectations slightly, an incremental positive. It expects CIT to use the $2bn to retire $1.1bn of 2013 Series A and ~$850m 2014s. Remaining proceeds pay off call premium & deal expenses. Morgan Stanley's 2011 operating EPS falls by 10c as a result of the call premium and the previous assumption that not all Series A debt would be replaced with new debt. 2011 reported EPS falls by 25c due to the incremental impact of accelerated interest amortization from the redemption. Morgan Stanley is taking annual EPS up by 4c starting in 2012 as interest expense declines by an incremental ~$11mm annually vs prior estimates. While Morgan Stanley expects CIT to make significant progress on calling Series A, optimizing its funding strategy, and growing originations, it feels that substantial upside on each of these initiatives is priced in. Morgan Stanley has an Equal-weight rating on CIT CIT closed Wednesday at $41.91