Embattled lender CIT Group has finally made peace
with billionaire Carl Icahn, who is the company's biggest bondholder. Icahn had been opposing CIT Group's latest plan to reorganize with a bondholder debt swap. But after furious negotiations, all parties have tentatively agreed on a solution. CIT Group is so deep in debt that the fix had to be a big one.
CIT will file for chapter 11 bankruptcy this weekend and present the court with a prepackaged plan of reorganization that all creditors have supposedly agreed to. The court will approve it and then CIT emerges from bankruptcy. That's the plan, anyway.
CIT has agreed to accept $1 billion in backup financing from Mr. Icahn, which it would tap if it needs more than $4.5 billion it recently received from other bondholders, these people said. CIT stock was halted on the news.
As part of further discussions with CIT, Mr. Icahn has agreed to back down while the company restructures in bankruptcy court. CIT launched a debt-exchange offer about a month ago while also asking bondholders to vote on a prepackaged bankruptcy plan.
The results of CIT's debt-exchange offer have not yet been finalized, but people close the company said it had likely failed. Meanwhile, the company had cleared significant hurdles that would give it more support than it needs for its prepackaged bankruptcy plan, a person familiar with the matter said.
The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11, these people said.
CIT and Mr. Icahn declined to comment.
The deal comes as Mr. Icahn has so far failed to persuade bondholders to block CIT's restructuring plan, these people said. The billionaire investor tried to derail CIT's restructuring plan by offering bondholders 60 cents on the dollar to vote down the lender's debt-exchange offer and prepackaged bankruptcy plan.
So why is everyone so determined that CIT Group not fail? Well, other than the fact that the investors don't want to lose their money, there is the fact that if CIT Group fails, it will cause a chain reaction in the U.S. economy as potentially thousands of businesses which rely on CIT Group for short term financing could also fail if they can't find other sources of credit to finance inventories. That would be very bad indeed.
