Famed corporate raider Carl Icahn said he offered to underwrite a $6 billion loan to CIT Group Inc
In a letter to CIT's board on Monday, Icahn said the cash-strapped commercial lender is offering certain large bondholders the opportunity to purchase $6 billion in secured loans well below their fair market value.
The billionaire investor, who has made himself a champion of improved corporate governance, said the offer comes at the expense of thousands of smaller bondholders who would not have the same opportunity.
In order to purchase the loans, the large bondholders would be required to vote in favor of the company's proposed exchange offer or its plan of reorganization.
This ... is a bad-faith attempt to buy votes for the company's exchange offer/plan of reorganization, Icahn said. This is reminiscent of the old Tammany political machine's vote-getting tactics.
Icahn said he sees no reason why the current CIT board should continue to control the company.
CIT is proposing a plan of reorganization which Icahn contends is designed to keep the existing management and its handpicked successors in control of a reorganized CIT, and give board members releases against certain claims that shareholders and bondholders would have against them.
As an alternative to the current plan, Icahn said he offered to underwrite a $6 billion loan that he said would save the company as much as $150 million in fees to prospective lenders under the company's proposal.
Icahn's offer would not force bondholders to vote for the current reorganization plan. He says the plan would entrench current board members.
If CIT chooses not to accept Icahn's offer, he said, other banks would be eager to underwrite the financing if they were not required to approve CIT's reorganization.
On Friday, CIT said it agreed with a group representing its bondholders on changes to the company's proposed restructuring plan. The changes include a mechanism to accelerate the repayment of new notes; the shortening of maturities by six months for all new notes and junior credit facilities; and offering more equity to subordinated debt holders.
On October 1, CIT launched a debt-exchange plan as it looked to cut its debt by at least $5.7 billion.
The company, one of the largest lenders to small and mid-sized companies, also asked bondholders to approve a prepackaged plan of reorganization that would allow it to initiate a voluntary bankruptcy filing under Chapter 11 if the debt exchange failed.
CIT said on Friday that completion of either the debt exchange or a bankruptcy filing would generate significant capital and improve its liquidity.
CIT received an emergency loan from a group of bondholders in July. The group included Pacific Investment Management Co, Baupost Group, Centerbridge Partners LP, Oaktree Capital Management, Capital Research & Management Co and Silver Point Capital.
(Reporting by Joseph A. Giannone, additional reporting by Jessica Hall in Philadelphia; editing by John Wallace)