CIT (CIT) Can't Sell Its Own Stock - Why Should You Own It?

September 1, 2009 12:42 PM EDT

So today we learned that CIT (NYSE: CIT) was unable to execute an 'Alternative Payment Mechanism' to satisfy a September 15, 2009 interest payment. What is the 'Alternative Payment Mechanism' and why should its faliure be scary to anyone with a pulse owning the stock?

ZeroHedge points out that the Alternative Payment Mechanism on the notes requires the company sell common stock to satisfy its interest payment. So, even though the stock trades 100 million shares a day and is likely significantly overvalued, CIT couldn't sell stock to institutional investors.

Why the trigger event happened in the first place was:

• the Tangible Equity Amount is less than 5.5% of Total Managed Assets for the Company's most recently completed fiscal quarter; or


• the Average Four Quarters Fixed Charge Ratio for the Company's most recently completed fiscal quarter is less than or equal to 1.10. provided.

We've attempted to contact the company to confirm that they couldn't sell common stock but could not get a company official on the phone.

Shares of CIT are down 13% today, but still up 390% from its post-bailout low.

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