Carl Icahn, the famed corporate raider, has accused finance company CIT Group Inc. of trying to win support for its reorganization by overpaying for a new loan from some existing lenders.
Icahn, reportedly the largest holder of CIT debt, said the struggling finance company, a major supplier of leveraged loans to small and mid-sized companies, is looking to borrow $6 billion from some of its current debt investors. The company can do better, Icahn said, noting that he will offer an equal amount of money on better terms. He also hopes to change the company’s board of directors.
“We’re the largest creditor and we think it’s egregious what’s going on over there,” Icahn told Reuters in a phone interview. “This company belongs to the bondholders, and these guys are buying votes with the idea of staying in control …”
CIT is working to avoid bankruptcy by offering to pay $300 million of fees on the new $6 billion loan. But CIT will only allow major investors that agree to support the company’s restructuring efforts—either a debt exchange or a prepackaged bankruptcy negotiation—to participate in the loan. The offer comes at the expense of thousands of smaller bondholders who do not get the same opportunity, Icahn charged.
“This is a bad-faith attempt to buy votes,” he wrote. “This is reminiscent of the old Tammany political machine’s vote-getting tactics,” referring to the Democratic Party political machine that controlled New York City politics for decades. Icahn said he would underwrite the $6 billion loan for fees of $150 million, or half what the company is offering to other creditors, and without any requirements for supporting a reorganization plan.
The loan would be supported by $30 billion of assets that already support $3 billion of debt. The company had about $70 billion of assets as of the end of June.
CIT said in a statement that it has received Icahn’s letter, and intends to ask for more information. The company added that it is open to securing funding “on the most beneficial terms.” One analyst said the Icahn loan may not be much better for most investors than the one the company is proposing, because a critical issue for investors is the large amount of collateral, roughly $30 billion, that would back any new loan.
“If you don’t reduce the excess collateral on existing secured debt, what is the benefit to unsecured investors?” said Kevin Starke, analyst at CRT Capital Group, which is a broker-dealer for debt securities.
CIT has more than $1 billion of unsecured debt maturing by the end of the year, and in a filing with regulators in August the company said if it cannot properly restructure its debt, it might have to file for bankruptcy. In early October, the company proposed a debt exchange that could reduce its outstanding debt by at least $5.7 billion. It also put forth a prepackaged bankruptcy plan, and asked investors to support both restructuring options. It has since disclosed some sweetened terms to that debt exchange, including more equity for subordinated debt holders.
—Joseph Giannone and Jessica Hall are journalists with Reuters. Additional reporting was done by Dan Wilchins and Karen Brettell, also with Reuters.