Stephen Bernard reports at Kansas City.com that activist investor Carl Icahn is offering struggling lender CIT Group a $6 billion lifeline. In a letter Monday to CIT’s board of directors, Icahn said he would give the company the loan to replace a debt restructuring plan CIT has asked bondholders to approve.
Icahn, who is a CIT bondholder, said in his letter the $6 billion loan would save the company $150 million in fees. He also criticized the board for pushing an exchange offer that he said unfairly favors large bondholders at the expense of smaller investors and that also undervalues the company.
CIT said in a statement it received Icahn’s letter and is asking for more information regarding the proposal. “This letter is CIT’s first indication of Mr. Icahn’s interest in underwriting an alternative financing,” the company said.
The offer came three days after CIT sweetened an offer for bondholders to swap out the company’s current debt for debt that matures later and some stock. The proposed restructuring is aimed at reducing CIT’s near-term debt burden by $5.7 billion.
The company’s new offer is a sign the restructuring plan is not going well, said Hal Reichwald, co-chair of the banking and specialty finance practice group at the law firm Manatt, Phelps & Phillips LLP.
“Obviously some bondholders have concern,” Reichwald said. However, improving the deal for some debtholders hurts others, he added.
CIT is also asking bondholders to approve a prepackaged reorganization plan should it need to file for bankruptcy protection. Icahn said his loan would allow bondholders to reject the restructuring plan and the prepackaged reorganization plan.
The company warned in a regulatory filing Monday it might still have to file for bankruptcy protection even if it completes the restructuring.
CIT is one of the largest lenders to small and mid-sized businesses. Its shares gained 9 cents, or 8 percent, to close at $1.21.
Michael Gallo, a partner and head of the finance group at the law firm DeCotiis FitzPatrick Cole & Wisler LLP, questioned the potential effectiveness of Icahn’s loan offer.
“The whole intent of the (debt restructuring) is to reduce debt,” Gallo said. “Replacing a loan with another loan doesn’t really do it.”
Icahn’s loan would essentially help repay existing debt that will mature in the near future. That would leave CIT still on the hook to repay the new money borrowed from Icahn.
“It’s just forestalling the inevitable,” Gallo said of Icahn’s loan proposal.
Read more at: Kansas City.com