Billionaire financier Carl Icahn pulled no punches on Monday in a scathing open letter to the board of CIT Group (CIT). The foundering century-old lender "shamelessly" offered to sell big bondholders $6 billion in loans to the company at "well below fair market value," all to the detriment of smaller investors, Icahn alleged.

To the feared corporate raider and distressed-debt investor, it's the last in a long line of perceived insults by CIT's board. And paving the way for their removal, it would appear, is one of the main motivations behind his offer to extend his own $6 billion loan that he says would be cheaper and come with fewer strings attached.
Icahn's plan would save CIT $150 million in fees, half of what it proposes to pay lenders for the loan, he says. His letter comes after the company sweetened its pitch to debt investors on Friday.

"We cannot sit idly by and watch you continue to destroy the value of the bondholders' assets, in this case by outrageously overpaying fees," Icahn wrote, describing himself as "CIT's largest creditor." The fees are grabbing headlines, but a close reading of his letter reveals they're not what's really rankling Icahn.

What is he mad about, then? To get a piece of the loan CIT wants to sell, investors have to agree to support the company's plan to restructure the mountain of debt that's looming over it, Icahn says. And that plan would leave current board intact or replace it with hand-picked successors, while giving it "releases against certain claims that shareholders and bondholders would have against them," he writes.

As for such claims, "I believe there are many," Icahn wrote. At the heart of the dispute over protections for CIT's board appears to be sanctions against its Utah-based bank, which received an order from federal and state regulators to cease allegedly "unsafe and unsound" activities in July. In his letter, Icahn blasted the board for arguing that authorities could seize the bank if there's too much turmoil at the top of CIT.

Icahn sounded doubtful about that in his letter. Even if the board is right, he wrote, any gain the company might realize by running the bank, which has just $9.9 billion in assets and can't grow under the terms of the regulators' order, "pales in comparison to the loss of value which would likely occur if this Board, like the proverbial fox in the henhouse, is left in place to manage" the company.

And analysts are skeptical that CIT's restructuring will work. The company already swapped $3 billion in bonds over the summer and now faces the daunting task of exchanging even more debt or getting investors to agree to a pre-packaged bankruptcy. Unfortunately, according to CreditSights analyst Adam Steer, the outlook isn't good. "We believe CIT's plan has very little chance of succeeding," Steer wrote in a note to clients Monday.

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