Carl Icahn Calls CIT Group Board Incompetent, Offers $6 Billion Loan
Billionaire financier and shareholders' rights activist Carl Icahn has offered troubled commercial lender CIT Group a way out of its difficulties. Icahn, who is CIT Group's largest creditor, has offered to loan CIT another $6 billion.
So why would he do that? Clearly he's worried about his underlying loan and he really does not like the restructuring plan that has been proposed with bondholders. In fact, he thinks it's a terrible deal. He wrote a blistering letter to what he refers to as CIT's s "incompetent and unconscionable" board of directors. He thinks the bondholder swap is just a way to buy votes and says he can save the company $150 million in fees if he makes the loan.
In a letter to CIT's board, Icahn said the loan would save the company $150 million in fees to prospective lenders, and would not force bondholders to vote for a revised debt exchange. Icahn in his letter criticized the proposed $6 billion in a secured term loan being offered by the company as a "bad-faith attempt to buy votes for the company’s exchange offer/plan of reorganization, since all prospective lenders must vote their CIT debt in favor of the company's plan in order to receive an allocation of the new loan." He also chastised the proposed prepackaged bankruptcy plan because it would give the board "releases against certain claims that shareholders and bondholders would have against them."
CIT in response said on Monday that it intends to "ask Mr. Icahn for more information regarding his proposal."
The lender to small businesses and middle-market companies added that, while it has developed a restructuring plan in consultation with a steering committee of CIT lenders, it “remains open to securing financing on the most beneficial terms.”
Michael A. Gallo Jr., head of the finance group at the law firm DeCotiis, FitzPatrick, Cole & Wisler, noted Icahn’s offer fails to address the restructuring plan.
"The whole purpose of the restructuring is to exchange some of the debt for equity so CIT wouldn’t have to repay it. If you're trading one loan for another, you’re not accomplishing [any restructuring], just pushing off the [debt] obligation to another time," Gallo said.
Now that Carl Icahn has waded into the fray and essentially said that the CIT Group Board of Directors is either incompetent, a bunch of crooks, or both, things are bound to get a bit sticky. We're not sure where all this ends up. Icahn admits that he and the Board generally don't get along (that's putting it mildly) and says if they don't want to take the money from him to clear existing debt, that there are plenty of banks that would finance the deal in a way that would be better for the company than this bondhlder debt swap plan.
The board is unlikely to take money from Icahn; it seems more likely that he is doing this to expose what he claims as mismanagement and to stop a bad deal.
Some analysts say CIT is too big and too crucial to American retailers to be allowed to fail, but in these uncertain economic times anything could happen.
