UPDATE: CIT Obtains Extra $4.5 Billion As It Presses Ahead With Plan
October 28 2009 - 5:10PM
Dow Jones News
Brushing aside billionaire investor Carl Icahn's 11th-hour
effort to scupper the process, CIT Group Inc. (CIT) said Wednesday
it raised an extra $4.5 billion as it presses ahead with its
restructuring plan.
The embattled lender to around 1 million small and midsize
businesses said it would add the $4.5 billion to a $3 billion loan
put in place by a group of the firm's largest bondholders in
July.
CIT's announcement comes less than 24 hours after Icahn, who is
CIT's largest bondholder, upped the ante on the firm's
reorganization plan, giving the company less than an hour to
respond to his offer to provide $4.5 billion in loan financing
while threatening to sue the firm if it went with the rival
bondholder loan.
"As a result of the lack of evidence that Mr. Icahn has arranged
sufficient funding at this time, CIT's Board of Directors
determined that the best interests of the Company and its
stakeholders would be served by proceeding with the credit facility
provided by a diverse group of lenders," CIT said in a written
statement.
Icahn asserted that his loan would have saved the company $112.5
million in fees.
Holders of some $31 billion in bonds have until 11:59 p.m. EDT
Thursday to exchange their debt for a mix of new bonds that mature
later and preferred stock in a reorganized CIT. The company hopes
cut its debt by at least $5.7 billion.
Some 50 of CIT's bondholders are lenders to the extra $4.5
billion in financing, which matures in January 2012, people
familiar with the matter have said previously.
If the century-old firm doesn't get enough support for the
exchange offer, it plans to restructure through a prepackaged
bankruptcy, which would allow it to reorganize within a couple of
months.
If the company's plans fail and it has to be liquidated, CIT
said last week that bondholders may get as little six cents on the
dollar.
CIT is offering bondholders 70 cents on the dollar plus equity
in the reorganized entity if they vote in favor of a prepackaged
bankruptcy. If they agree to the exchange offer, bondholders can
get as much as 90 cents on the dollar of new debt plus some
equity.
Icahn, who owns $2 billion of CIT's bonds, believes bondholders
could potentially get back all of their investment in a traditional
bankruptcy. On Tuesday morning, he announced a 30-day tender offer
to buy bonds from CIT's smaller bondholders at 60 cents on the
dollar if they help him block the firm's reorganization plan.
"The Icahn proposal would assure the common shareholders receive
nothing, as would the prepack plan," said Michael Taiano, an
analyst at Sandler O'Neill & Partners in New York. "If Icahn
has his way, it would in all likelihood end any chance CIT has to
re-emerge as a bank-like entity." Icahn didn't immediately respond
to CIT's announcement.
In a second statement later Wednesday afternoon, CIT said it
would accelerate changes to its board of directors in a potential
prepackaged bankruptcy scenario.
"Immediately upon effectiveness of CIT's plan of reorganization,
a majority of the directors will be individuals who were identified
by bondholders," CIT said in this statement. In this instance, the
board will consist of 13 directors, including 12 independent
directors and the chief executive. Four of these directors will be
identified by CIT's steering committee of bondholders, while three
will be chosen by bondholders who are not members of the steering
committee, according to the statement.
CIT believes it has "broad support" for its restructuring plan
among both large and small bondholders. But Icahn's offer to
provide downside protection to smaller bondholders may be tempting
to some of these investors.
Indeed, Victoria Lytle, a retired research scientist based in
Anchorage, Alaska, described her choices under CIT's reorganization
plan as "dismal."
"For someone who wants the stable retirement income--Icahn's
offer is my best bet," she wrote in an email to Dow Jones
Newswires.
Even if Icahn fails to derail CIT's plans, he is unlikely to go
away quietly.
"Icahn is making last-ditch efforts to derail CIT's plan. It's
not really surprising that it's come down to the wire," said
Taiano.
CIT's shares closed up 10% at $1.06.
-By Kate Haywood, Dow Jones Newswires; 212-416-2218;
kate.haywood@dowjones.com