CIT Group, Inc. announced Tuesday that the company will be selling its Home Lending business to Dallas, Texas-based private equity firm Lone Star Funds for $1.5 billion. As part of the transaction, the Dallas firm will be purchasing servicing centers in Marlton, New Jersey and Oklahoma City, Oklahoma, as well as $4.4 billion in outstanding debt and related liabilities.
In a statement about the transaction, CIT said, “In the second quarter of 2008, CIT expects to record an estimated pre-tax loss for the Home Lending segment of approximately $2.5 billion ($2.0 billion after tax). This loss consists of an estimated $2.2 billion loss on sale and an approximate $350 million loss from operations during the period. Home Lending will be accounted for as a discontinued operation.”

This is not Lone Star Funds first foray into the lending sector. The company announced last year that it was purchasing subprime lender Accredited and recently acquired portions of Bear Stearns Residential Mortgage Corp. (Bear Res).
A legal team with McKee Nelson assisted CIT in developing the purchasing agreement.
“The transaction was challenging in that CIT was looking to completely exit the home lending business and have the buyer assume all associated liabilities, including liabilities of CIT undertaken in connection with securitizations of mortgage loans, marine and recreational vehicle loans and manufactured housing contracts,” a spokesperson for McKee Nelson said. “In conjunction with Wachtell, Lipton, Rosen & Katz, who served as mergers and acquisitions counsel to CIT, McKee Nelson assisted CIT in negotiating a purchase agreement that effectively shifted substantially all of the economic risk of CIT’s outstanding obligations in these securitizations to the buyer.”