CIT Group Inc, a leading provider of financing to small businesses and middle market companies, has announced a rights issue linked to a "Tax Benefits Preservation Plan".
The tax benefits preservation plan provides for a dividend distribution of one preferred share purchase right (a `Right') for each outstanding share of the company's common stock, par value $0.01 per share, CIT said in a release.
The dividend is payable on 24 August 2009, to the company's stockholders of record at the close of business on that date. Each newly issued `Right' will entitle the registered holder to purchase from the company one one-millionth of a share of a series of the company's preferred stock designated as junior participating preferred stock, at a price of $15 per unit, subject to adjustment.
The rights issue is designed to protect the company's ability to utilise its net operating losses and other tax assets, preserving value for the benefit of all stakeholders, but will not impede the company's ability to pursue restructuring or strategic opportunities.
This value could be reduced if the company experiences an "ownership change" under US federal income tax rules, which occurs if one or more "5 per cent shareholders" (as defined under US federal income tax laws) have aggregate increases of 50 per cent in their CIT ownership over a three year historic period, the company said in a filing.
The rights plan reduces the likelihood that CIT experiences such an ownership change by discouraging any person or group from becoming a "5 per cent shareholder."