UPDATE: CIT Board Announces Shareholder-Rights Plan
August 13 2009 - 1:01PM
Dow Jones News
CIT Group Inc. (CIT) put a stockholder-rights plan in place to
preserve potential income-tax benefits.
Like other companies struggling with the financial crisis and
the recession, CIT is planning to offset corporate taxes in the
future with the losses it is incurring now.
But those tax benefits would evaporate if big shareholders
increase their stake. Under Internal Revenue Service code, a
so-called change in control could be triggered if shareholders who
own 5% or more of a company's stock increase their ownership by
more than 50% over a three-year period.
CIT's board approved a plan that would dilute those ownership
changes and protect the tax benefits.
Citigroup Inc. (C), Toll Brothers Inc. (TOL), and Hovnanian
Enterprises Inc. (HOV) recently put in place similar plans.
News of the plan came as CIT entered into a written agreement
with the Federal Reserve Bank of New York, its principal regulator,
that limits how it can pay dividends and restructure debt. The New
York bank holding company also has to submit to the Fed, within 15
days, a written plan for maintaining sufficient capital.
Last month, CIT secured a $3 billion emergency loan from a group
of its six largest bondholders. The struggling commercial lender
has been facing a worsening liquidity crisis as its customers drew
down credit lines in fear that they might disappear. It has been
working in recent weeks to avoid a bankruptcy filing and said more
than once that a host of issues have left "substantial doubt" about
its ability to continue as a going concern.
The company said it would file more details about the
shareholder-rights plan with the Securities and Exchange
Commission.
"The plan should not hinder its restructuring," Standard &
Poor's equity analyst Matthew Albrecht wrote in a research note.
"We are in favor of increased oversight by regulators as the
company struggles to sustain itself, and we support moves by
management to return the company to profitability."
CIT's shares rose almost 15%, to $1.47, in a strong market for
the stock of large banking companies.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353;
kerry.benn@dowjones.com
(Darrell A. Hughes and Maya Jackson Randall contributed to this
report.)