CIT (CIT) Can't Sell Its Own Stock - Why Should You Own It?
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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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NIKE AF 1
NIKE AF 1 :http://www.webrealaf1.com/ Email:zhgen2009@sina.com
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Misreading the announcement
Mike on Sep 2, 2009 11:13 AMWhen you're a firm (or an individual) trying to conserve cash, if given the choice, and the key word is choice, to delay a payment, you go ahead and do so. This was fully within the rules of their agreement so why issue stock (which they could have sold on the market and not to institutional investors) if you don't have to. The media seems to be ganging up on CIT when there is simply not enough information available. They were to submit a restructuring plan to the NY Fed last week, and for all we know this is what they said. It could be a required step to getting TARP aid but it is something we don't know. Broad assumptions in this company is not something one can do since they have been very quiet on their plans