Icahn offers to underwrite $6 billion loan to CIT

NEW YORK/PHILADELPHIA (Reuters) - Carl Icahn, the famed corporate raider who says he is the largest holder of CIT Group Inc bonds, said the troubled lender is paying too much for an ill-conceived plan to win over a select few creditors.

Icahn sent a letter to CIT's board on Monday offering to underwrite a $6 billion loan to the company. He also criticized CIT's reorganization plan, saying it will only enrich certain CIT lenders and advisers without creating a sustainable, competitive company.

"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..."

In the letter, Icahn said the cash-strapped commercial lender is offering certain large bondholders the opportunity to purchase $6 billion in secured loans at prices well below their fair market value.

In exchange, the bondholders must approve CIT's proposed debt exchange offer or its plan of reorganization, he said.

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."

Icahn said the current CIT board, which has overseen the aggressive expansion of the lender and, now, more than a year of losses, has hardly shown it should continue to control the company.

"It's ludicrous. They're going to stay in control and they're telling you they're going to try to set up a bank," he told Reuters. "I think we'd only go back to Chapter 11."

Icahn said CIT should pursue an "orderly run-off of the assets."

CIT, one of the largest lenders to small and mid-sized businesses, declined to comment. Its shares were up 11 cents to $1.23 in afternoon trade on the New York Stock Exchange.

ICAHN SAYS HIS PLAN WOULD SAVE MONEY

As an alternative to the current plan, Icahn offered to underwrite a $6 billion loan to CIT that he said would save the company as much as $150 million in fees that would be paid to prospective lenders under the company's proposal.

Icahn said his offer would not force bondholders to vote for the current reorganization plan.

On Friday, CIT said it agreed with a group representing its bondholders on changes to the company's restructuring plan.

The changes include a mechanism to accelerate the repayment of new notes; the shortening of maturities by six months for all new notes and junior credit facilities; and offering more equity to subordinated debt holders.

On October 1, CIT launched a debt-exchange plan as it looked to cut its debt by at least $5.7 billion.

The company also asked bondholders to approve a prepackaged plan of reorganization that would allow it to initiate a voluntary bankruptcy filing under Chapter 11 if the debt exchange failed.

CIT said on Friday that completion of either the debt exchange or a bankruptcy filing would generate significant capital and improve its liquidity.

Gary Eisenberg, a partner in the bankruptcy group Herrick, Feinstein, said Icahn's comments could throw a wrench in CIT's plans.

"Given that one of the things he wants to do is un-entrench the board, CIT will be wary of the offer," Eisenberg said. "They will see this as him attempting to use the leverage of his position to gain control of the board."

CIT received an emergency loan in July from a group of bondholders including Pacific Investment Management Co, Baupost Group, Centerbridge Partners LP, Oaktree Capital Management, Capital Research & Management Co and Silver Point Capital. Icahn amassed bonds in recent months while some of these steering creditors sold their positions.

Icahn told Reuters he will challenge some of CIT's previous, highly expensive rescue financing.

"I'm going to investigate transactions that appear questionable and possibly negligent, such as that Goldman Sachs transaction," he said. "They may owe Goldman hundreds of millions of dollars because of that transaction."

Goldman Sachs set up a secured credit facility for CIT in June 2008. Published reports have said the investment bank is entitled to a $1 billion payout under the terms of that facility if CIT were to file for bankruptcy.

(Reporting by Joseph A. Giannone in New York and Jessica Hall in Philadelphia; editing by John Wallace)