CIT Group Inc. announced it has entered into a definitive agreement to sell CIT Commercial Air, its commercial aircraft leasing business, to Avolon Holdings Limited (“Avolon”), the international aircraft leasing company and a wholly-owned subsidiary of Bohai Capital Holding Co. Ltd. The transaction is expected to close by the end of the first quarter of 2017, subject to regulatory approvals and customary closing conditions.
CIT has received a “non-objection” from the Federal Reserve Bank of New York for its Amended Capital Plan subject to the closing of the transaction. The Amended Capital Plan authorizes CIT to return $2.975 billion of common equity to shareholders from the net proceeds of the sale; return up to an additional $0.325 billion of common equity contingent upon the issuance of a similar amount of Tier 1 qualifying preferred stock; and pay common dividends totaling $64 million per year after the transaction is completed, subject to quarterly approval by the CIT Board of Directors.
“The sale of CIT Commercial Air represents an important milestone for CIT and follows an extensive dual-track process that was designed to maximize shareholder value. This transaction will strengthen our balance sheet, simplify our business and enable us to return significant capital to our shareholders,” said Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT Group. “We are making meaningful progress on our strategy to create a leading national middle-market bank. I want to thank all of our employees, and in particular those in Commercial Air, whose solid commitment to building an outstanding franchise over more than 40 years has enabled the success of this transaction.”
CIT is selling the CIT Commercial Air business to Avolon, including its operations, forward order commitments, and as of June 30, 2016, certain assets of $11.1 billion and liabilities of $1.7 billion. The Adjusted Net Assets Amount total $9.4 billion which Avolon is purchasing for a price of $10.0 billion, representing a premium of 6.7%.
The transaction is subject to receipt of regulatory approvals in the United States, China and certain other foreign jurisdictions, the approval of Bohai’s shareholders and the satisfaction of customary closing conditions. HNA Group, Bohai’s majority shareholder, has agreed to vote its shares in Bohai in favor of the transaction. To reflect its commitment to the transaction, Avolon has deposited $500 million into an escrow account with a U.S. bank (which will be increased to $600 million during the pendency of the transaction), which is payable to CIT at closing as part of the purchase price and in certain circumstances if the transaction is not consummated.
J.P. Morgan Securities LLC served as exclusive financial advisor to CIT Group, and Bank of America Merrill Lynch provided capital markets structuring advice. Wachtell, Lipton, Rosen & Katz served as legal counsel to CIT Group. Sullivan & Cromwell provided bank regulatory advice on the Amended Capital Plan.