CIT To Aggressively Pursue Middle-Market Lending

Corporate Financing Week
November 11, 2001

CIT's Corporate Finance Group has a new directive from upper management to pursue middle market lending opportunities aggressively, particularly with regard to financial sponsors.

Rob Newbold, a managing principal at leveraged buyout firm Graham Partners, met last week with CIT's Jeff Delporto, a member of what had been called the merchant banking group and is now renamed the corporate finance group. According to the pitch by Delporto, CIT is aggressively looking to expand its cash flow lending and is focusing on companies with EBITDA of $10 million or more. CIT is also willing to hold up to $20 million of debt on its balance sheet, either as part of a larger deal or as sole investor, according to Newbold.

There has been a dearth of middle-market lenders to financial sponsors as consolidation in the middle market has increased and traditional lenders such as Bank One have decided to pull back (CFW, 9/30). The group is growing cash flow lending because financial risk is at a lower level as multiples have come down significantly, said Rob Golding, group head. CIT wants to boost its position as a provider of capital to the middle market, he added.

Financial sponsors are the main proponents of cash flow lending deals, which base a company's value on cash flows and include cash-flow covenants. The alternative is asset-based deals, where a company's value is assessed on the value of P&E and working capital. Historically, The CIT Group was known for asset-based lending, said Hunter Boll of LBO firm Thomas H. Lee Company, who had completed a few secured financing deals with the lender.