March 19, 2008 / 8:17 PM / in 11 years

Moody's cuts CIT rating, Fitch may cut

NEW YORK, March 19 (Reuters) - Moody’s Investors Service cut its ratings on CIT Group (CIT.N), and Fitch Ratings on Wednesday said it may cut them, citing challenges the commercial finance company faces in accessing reasonably priced funds.

“The current credit market environment is challenging the strength of CIT’s liquidity profile to a degree not previously experienced by the firm,” Moody’s said in a statement late on Tuesday.

CIT’s ability to source traditional unsecured funding at economically viable prices has been materially constrained, Fitch said on Wednesday.

Moody’s cut CIT’s long term ratings one notch to “A3,” the seventh highest investment grade, and said it may cut them again. Fitch may cut the company’s issuer default rating from “A,” the sixth highest ranking.

In addition, Moody’s cut CIT’s short term rating, which is likely to make it more challenging for the company to sell commercial paper.

“Although CIT successfully renewed maturing committed conduit facilities in 2007, access to the term ABS markets is constrained,” Moody’s analyst Mark Wasden said in the statement. “Our review will focus on the company’s ability to respond to its funding challenges while managing potential dilution to its profitability and franchise strength.”

CIT has traditionally relied on accessing funds by selling securitizations of its assets, in addition to unsecured debt.

Fitch said it expects CIT will need to use alternative sources of funding and liquidity, which include unsecured, committee bank lines totally $7.3 billion.

If the company is successful in raising funds required relative to its asset base, its rating will likely be affirmed with a negative outlook, Fitch said.

The cost to insure CIT’s debt with credit default swaps has jumped to 1076 basis points, or $1.07 million per year for five years to insure $10 million in debt, from 634 basis points at the beginning of March, according to Markit Intraday. (Reporting by Karen Brettell;)

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