CIT Group to sell aircraft leasing unit for $10bn

December 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

CIT Group Inc, a leading provider of commercial lending and leasing services, entered into a definitive agreement to sell its commercial aircraft leasing business, CIT Commercial Air, to Avolon Holdings Limited in a transaction valued at $10bn.

The sale includes CIT Commercial Air’s operations, forward order commitments and certain assets of $11.1bn and liabilities of $1.7bn. Additionally, adjusted net assets amount to $9.4bn – which Avolon is purchasing for the aforementioned $10bn – which represents a premium of 6.7 percent.

Furthermore, CIT has received a “non-objection” from the Federal Reserve Bank of New York for its amended capital plan (subject to the closing of the transaction) which authorises the Group to: (i) return $2.975bn of common equity to shareholders from the net proceeds of the sale; (ii) return up to an additional $325m of common equity contingent upon the issuance of a similar amount of Tier 1 qualifying preferred stock; and (iii) pay common dividends totalling $64m per year after the transaction is completed, subject to quarterly approval by the CIT board of directors.

CIT has also said that it intends to return up to $3.3bn of common equity to its shareholders and undertake certain related liability management actions.

Headquartered in Ireland, Avolon is a wholly-owned, indirect subsidiary of Chinese company Bohai Capital Holding Co. Ltd, providing aircraft leasing and lease management services. The firm has offices in the US, Dubai, Singapore, Hong Kong and Shanghai.

To reflect its commitment to the transaction, Avolon has deposited $500m into an escrow account with a US bank (to be increased to $600m), which is payable to CIT at the close of the transaction as part of the purchase price and if the transaction proves not to be consummated.

“The sale of CIT Commercial Air represents an important milestone for CIT and follows an extensive dual-track process that was designed to maximise shareholder value,” said Ellen R. Alemany, chairwoman and chief executive of CIT Group. “This transaction will strengthen our balance sheet, simplify our business and enable us to return significant capital to our shareholders. We are making meaningful progress on our strategy to create a leading national middle-market bank.”

Founded in 1908, CIT Group is a financial holding company with more than $65bn in assets. Its principal bank subsidiary, CIT Bank, N.A., has more than $30bn in deposits and more than $40bn in assets. The firm provides financing, leasing and advisory services principally to middle market companies across a wide variety of industries primarily in North America, and equipment financing and leasing solutions to the transportation sector. It also offers products and services to consumers through its internet bank franchise and a network of retail branches in southern California.

Serving as the exclusive financial adviser to CIT Group throughout the course of the transaction has been J.P. Morgan Securities LLC, while Bank of America Merrill Lynch has provided capital markets structuring advice. In addition, Wachtell, Lipton, Rosen & Katz has served as legal counsel to CIT Group, with Sullivan & Cromwell providing bank regulatory advice regarding the amended capital plan.

Expected to close by the end of the first quarter of 2017, the transaction is subject to receipt of regulatory approvals in the United States, China and certain other foreign jurisdictions, the approval of Bohai’s shareholders and the satisfaction of customary closing conditions.

Concluded Ms Alemany: “I want to thank all of our employees, and in particular those in Commercial Air, whose solid commitment to building an outstanding franchise over more than 40 years has enabled the success of this transaction.”

Fraser Tennant