C-IT drop

Thursday to scrap its student loan business comes as speculation of a buyout for the troubled commercial finance company grows. Student loans have taken a hit over the past few months, because as times get tough new grads cant afford to pay them.

CIT, which quit subprime mortgage lending last year, plans to sell some businesses in the first quarter while keeping its ``marquee'' units intact ``as much as possible,'' Chief Executive Officer Jeffrey Peek said in a conference call yesterday. The New York-based company drew on its entire $7.3 billion of emergency credit lines after being cut off from customary sources of cash.

CIT's shrinking access to cash adds to evidence that the credit crunch -- which already has claimed Bear Stearns Cos. and Countrywide Financial Corp. -- isn't responding to the Federal Reserve's effort to encourage more lending. The ``protracted disruption'' in capital markets may force Peek's company to find a ``strategic'' partner that can provide funding, he said.

The lender had its biggest drop in almost six years of New York Stock Exchange trading yesterday before a mid-session halt to announce that the company had tapped its credit lines. CIT closed down $2.01, or 17 percent, at $9.63. The shares fetched more than $61 last June.

Bond prices

The company's $500 million issue of 5.6 percent notes due in 2011 slumped to as low as 66.5 cents on the dollar, according to Trace, the Financial Industry Regulatory Authority's bond- pricing service. CIT has $2.8 billion of commercial paper due this year and $8.2 billion of other debt.

CIT may also have more than $4 billion of holdings tied to subprime mortgages, according to a March 17 report by Standard & Poor's. Subprime mortgages are made to people with weak credit, and record defaults on the loans helped trigger the global credit rout.

The New York-based finance company has been rattled since last month, suffering a series of setbacks due to its exposure to risky subprime mortgages. On March 19, Fitch Ratings placed the issuer default rating and debt ratings of CIT Group on a negative rating watch.

Oh yeah, and CIT also provided financing to ATA Airlines. The airline declared bankruptcy Thursday. CIT is the largest independent commercial finance company and was spun off from Tyco International in 2002. Shares have lost 73% of their value over the last 52 weeks and the stock is currently trading down 6 cents to $14.09.