CIT, which has struggled to finance itself amid the credit crunch, sold its subprime mortgage business for $1.5 billion in cash to Lone Star Funds, which is also assuming $4.4 billion of outstanding debt and other liabilities. The mortgage business includes $9.3 billion of assets.
CIT also agreed to sell its $470 million portfolio of loans financing manufactured homes to Vanderbilt Mortgage and Finanace Inc for about $300 million.
The company will take a second quarter charge of about $2.5 billion before taxes from the sale.
"These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class," Chief Executive Jeffrey Peek said.
Removing those assets is a positive for CIT, but the company still has to answer broader questions about how it will finance its operations as borrowing in the bond markets becomes increasingly difficult for many companies, an analyst said.
We continue to view (CIT's) funding risk as being paramount," wrote David Chiaverini, analyst at BMO Capital Markets, in a research note.
The company drew on its entire $7.3 billion of bank lines in March after it was unable to otherwise refinance maturing short-term debt known as commercial paper.
CIT has billions of dollars of debt maturing this year, and selling assets is part of its strategy for paying back the obligations. The company is still in the process of selling its railcar leasing business, which is expected to be completed in the third quarter.
The company has also sold $1 billion of common shares and $500 million of convertible preferred shares, and received $3 billion of financing from Goldman Sachs.
CIT was formerly a consumer and corporate lender, but it has been exiting the mortgage and student loan businesses so it can focus on commercial finance.