RPT-DEALTALK-CIT and GE, selling rail cars, compete for buyers

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By Paritosh Bansal and Dan Wilchins

NEW YORK, Aug 7 (Reuters) - CIT Group Inc CIT.N and General Electric Co (GE.N) are both looking to sell their rail car leasing businesses, but the auctions are dragging on as they compete for buyers in tight credit markets, according to people familiar with the situation.

CIT, a commercial lender hit hard by the credit crunch, said in April it was looking at options for its rail car leasing business, including a potential sale, a joint venture, or finding a minority partner.

Last month, CIT said it was in the late stages of the process, but sources said it may still be a while before a resolution is reached.

GE, which has been retooling its finance business over the last year, has also put its own unit on the block, meaning that two of the biggest rail car leasing companies are looking to sell their portfolios at the same time, sources said.

Moreover, the field of potential buyers has thinned because financing remains tough to come by, sources said.

"Buyers are scared right now," one source said, referring to the uncertainty over financing.

It could take till the end of the summer for a winning bidder to emerge in one of the auctions, the sources said. But they added that it could even take as long as the end of the year for the picture to clear.

Lease financing company GATX Corp (GMT.N), which controls one of the largest rail car fleets in the world, is still seen as a contender for CIT's business, one source said.

"We continue to review the strategic alternatives for our rail business, but cannot comment on ongoing transactions," a CIT spokeswoman said in an e-mailed statement.

A GE spokesman declined to comment.

GE VERSUS CIT

The accounting value of CIT's rail portfolio was about $4.4 billion as of the end of last year on its balance sheet. GE's rail assets had a net carrying value of about $2.8 billion. Those accounting values may not equal the sale price.

For buyers, these assets could be attractive. Returns on investment for rail car leases are often over 15 percent a year and with the price of scrap metal rising, the value of rail cars is also rising, said Toby Kolstad, president of advisory firm Rail Theory Forecasts.

CIT Rail owns and manages a fleet of more than 100,000 rail cars. GE Rail Services' assets include 165,000 rail cars and 120,000 intermodal trailers, containers and chassis.

Selling assets is a crucial part of CIT's strategy to get back on its feet after it lost access to short-term borrowings in the commercial paper market.

But the company recently agreed to sell $10 billion of mortgage assets, in a deal that removes problem loans from its balance sheet and also eases the pressure on CIT to sell its rail car business.

If CIT feels it has enough capital, it could decide not to sell the unit at all, one source said.

As the two units compete for buyers, GE could have a slight advantage over CIT because it may be able to finance at least a part of the deal if it wanted.

GE may also have more leeway to take a hit on price, because it can better afford to -- it had about $850 billion of assets as of June 30 and earned $22 billion last year, while CIT had about $87 billion of assets at the end of June and posted a $111 million net loss in 2007.

Last month, GE reached a deal to sell its Japanese consumer lending business and is also looking to part with its $30 billion portfolio of private-label credit-card operations, although it has acknowledged that deal will be tricky to get done in the midst of a credit crunch.

One source said the GE rail unit is likely to find a buyer first and the runner up could then go for the CIT unit.

"The logical cover bid on one would be the logical buyer for the other," the source added. (Additional reporting by Scott Malone in Boston; Editing by Andre Grenon)