American financier Carl Icahn, CIT Group Inc.’s largest creditor, has offered the beleaguered lender an alternative option in the form of a $6 billion 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.
Harold P. Reichwald, co-chair of the banking and specialty finance law practice group at Manatt, Phelps & Phillips, added, “CIT still needs to find a way to finance its ongoing activities, given that it currently cannot access the commercial paper market.”
Separately, CIT said Monday in a Securities and Exchange Commission filing that even with its debt swap in place, it might still file for Chapter 11 protection.
In the regulatory filing, which includes the proposed pre-packaged plan, the lender said only CIT Group Inc. and its Canadian unit, Delaware Funding, would file, leaving the firm’s operating divisions out of the proceedings. CIT also said that it could file a motion asking the court to authorize its continued funding of loan commitments, factoring and other services during its bankruptcy.
The company added that under the prepackaged deal, it expects to emerge from Chapter 11 in two months after such a filing.
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