Fitch Comments on CIT's Proposed Acquisition of ELG

Business Wire, Jan 5, 2005

NEW YORK -- Fitch Ratings believes that CIT Group Inc.'s (CIT) proposed acquisition of Education Lending Group (ELG) will have no impact on the company's existing ratings and Rating Outlook.

Fitch currently rates CIT and debt guaranteed by CIT but issued by AT&T Capital Corp. and Newcourt Credit Group Inc. as follows:

-- Senior debt 'A';

-- Preferred stock 'A-';

-- Commercial paper 'F1';

-- Rating Outlook Stable.

On Jan. 4, 2005, CIT announced that it would purchase ELG for approximately $381 million in cash. CIT plans to fund this transaction with debt. ELG, based in San Diego, is a $4.2 billion (total assets at Sept. 30, 2004) company. ELG originates and purchases Federal Family Education Loan Program (FFELP) student loans that are eligible for guarantee from the Department of Education (DOE), federally sponsored consolidation loans, and other eligible student loans.

CIT's purchase of ELG is somewhat of a departure from management's strategy of pursuing 'bolt-on' acquisitions. However, given the asset type, guaranteed student loans, the amount of credit risk that this transaction introduces into CIT appears manageable. Moreover, ELG's key management has executed three-year employment contracts with CIT, which should help maintain business continuity. CIT's demonstrated ability in managing and servicing a portfolio of small ticket loans should benefit the ELG business. ELG's portfolio is expected to grow in the range of about 15% per annum. At this growth rate, student loans will remain below 10% of CIT's managed loans and leases over the intermediate term. It is expected that CIT will primarily fund the student loan portfolio through asset-backed debt issuances.

Fitch believes that CIT paid a full price for ELG and expects that goodwill resulting from this transaction could approach $270 million. As a result, it is likely that CIT will actively seek opportunities to grow ELG's business as significant cost takeouts are not expected post closing.

From a capital perspective, this transaction will require use of some of the capital CIT has built up since its July 2002 initial public offering as the company's capitalization and leverage ratios will weaken on a pro forma basis. The combination of increased managed assets and goodwill are the drivers for the changes in these ratios. The incremental of capital needed to support this transaction is principally as a result of the goodwill created, as Fitch recognizes that student loans are a high quality asset class requiring only a moderate amount of capital support. At Sept. 30, 2004, total managed debt divided by tangible equity stood at 8.28 times (x), while tangible equity divided by total managed assets was 9.39%. Pro forma for the acquisition of ELG, these ratios were 8.71x and 8.31%, respectively. In the calculation of tangible equity, Fitch assigns 80% equity credit to CIT's preferred stock securities. CIT's ability to return to existing capital levels, assuming 10% asset and earnings growth from the existing portfolio in 2005, is not expected to occur until 2006. However, the company's pro forma ratios will remain within the range of levels reported since 2001, and steady improvement post closing is expected.

A direct comparison with historical levels is of limited use given the better credit quality of ELG's student loans than the majority of CIT's existing portfolio.

Founded in 1908, CIT Group, Inc. (CIT) is the largest publicly owned domestic diversified finance company. With over $50 billion in managed assets, CIT provides a full array of commercial finance products and services, as well as selected consumer finance offerings through a staff of about 5,700 employees throughout North America, with strategic offices in Europe, Latin and South America, and the Pacific Rim.