April 24, 2009 / 8:16 PM / 10 years ago

UPDATE 1-Moody's, Fitch cut CIT Group to junk status

(Adds Fitch downgrade)

NEW YORK, April 24 (Reuters) - Moody’s Investors Service and Fitch Ratings on Friday downgraded the ratings of CIT Group, Inc (CIT.N) to speculative, or “junk,” status, citing the rapid deterioration of asset quality trends.

Moody’s cut CIT’s senior secured debt three notches to Ba1, one notch into junk territory, the agency said. It cut CIT’s unsecured debt three notches to Ba2, two notches into junk status.

“Moody’s believes that pressures from further declines in asset quality and higher average borrowing spreads will likely result in CIT reporting additional operating losses through at least 2009,” said Mark Wasden, lead author on the report.

Fitch cut its long-term issuer default rating by two notches to BB-plus, one notch into junk.

Both agencies maintained a negative outlook, meaning they could cut CIT’s ratings again.

The commercial lender, which has been struggling to finance its business operations due to high funding costs, reported a wider-than-expected quarterly loss on Thursday.

CIT said it still had not received approval to issue government-backed debt through the Temporary Liquidity Guarantee Program, or TLGP. For details, see [ID:nN22161610].

Moody’s believes that “borrowing costs could ease if CIT grows and sustains a base of low-cost deposits or if it obtains approval to issue guaranteed debt under the FDIC’s Temporary Liquidity Guarantee Program,” said Wasden.

The agency also said it is concerned that huge net losses could eventually jeopardize CIT’s compliance with regulatory capital requirements.

“Moody’s believes that net losses CIT could report over the next several quarters could lead to a meaningful reduction in the firm’s capital levels,” Wasden said.

After being granted approval to become a bank holding company in December, CIT must now maintain a 13 percent total capital ratio and 15 percent at the CIT Bank level.

Moody’s said that at the end of the first quarter, CIT’s preliminary total capital ratio measured just 13 percent.

Moody’s did say that CIT is well capitalized for the short-term. “In Moody’s view, CIT’s liquidity profile includes sufficient resources to meet the company’s near-term obligations.”

The agency said its negative outlook is “based upon the continued operating challenges associated with the current credit cycle.” (Reporting by Tom Ryan; editing by Dan Grebler)

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