CIT was the doyenne of independent small-business and middle-market lending — until it wasn’t. During the financial crisis, the commercial-financing firm became a bank holding company to access funds from the Troubled Relief Asset Program. It then filed for Chapter 11 bankruptcy protection in November 2009. But the company has rebounded, in part through asset sales that have cleansed its balance sheet. In its third-quarter earnings report, CIT said its commercial portfolio grew 8 percent year-over-year, and its non-accrual loans fell to 1.18 percent. CIT bank has also amassed $12 billion in consumer deposits.
As a bank, CIT now has federal regulators regularly looking over the quality of its portfolio. But in many ways CIT is still CIT. It still plays in many of the same spaces — like commercial financing and leasing and vendor finance — where private capital providers do and competes against them regularly.
Neil Wessan is group head of CIT Capital Markets, the arm of CIT that structures, prices and distributes all financial products that CIT originates. He talked with CFO recently about the state of middle-market lending and what kind of loans the company is underwriting . An edited version of that interview follows.
What kind of companies is CIT targeting?
Our target is middle-market companies that have at a minimum $10 million to $15 of EBITDA although we will also look at companies up to and north of $50 million to $75 million of EBITDA. We’re focused on securing lead lender positions in transactions as well as participatory roles.
Because things are so competitive, have you had to adjust the firm’s risk appetite?
Leverage is still a little lower than it was at the peak of the last cycle. Terms and conditions have loosened to some extent, especially in some of the larger deals. Covenant-lite terms are much more prevalent, frankly, in the more liquid, large-deal market. However, in our universe, it’s a lot less prevalent, so we view the transactions we do as carrying less risk because there are covenants that offer some protection.
As a bank, as a holder of assets, we are conscientious of the impact of our transactions over the life of the asset. We’re not selling down to zero. In 2007 and 2008, for the most part the institutions that got into real trouble were the ones who were distributing down to zero, so it didn’t matter what they were putting into their deals. And when things came to a head, large banks had literally tens of billions of dollars of paper that they didn’t want. They couldn’t sell that paper to anyone. If you’re buying a piece of paper and structuring it so that you’re holding it for the life of the transaction, it’s a lot less risky.