Billionaire investor Carl Icahn offered a $6 billion lifeline to struggling lender CIT Group Inc. (CIT).
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 submitted to its bondholders for approval.
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.
On Friday, CIT sweetened a debt offer it launched earlier in the month in hopes of getting bondholders to swap out current debt for debt that matures later and stock in the company. The proposed restructuring is aimed at reducing CIT's near-term debt burden by $5.7 billion.
CIT, one of the largest lenders to small and mid-sized companies, is also asking bondholders to approve a prepackaged reorganization plan should it need to file for bankruptcy protection.
The revised restructuring plan would also give the government, which has already provided CIT $2.3 billion in aid, a 5.4 percent stake in CIT, up from the 2.4 percent proposed in the original plan.
Because CIT is one of the nation's largest lenders to the retail industry, some economists say the company's potential collapse could hurt a U.S. economy struggling to recover from recession.
Its customers range from Dunkin' Donuts franchisees to department store operator Dillards Inc. It is also a short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.
CIT's losses have been mounting as its borrowing costs have outstripped its income amid the credit crunch. It received $2.3 billion in federal bailout money last fall and a $3 billion emergency loan in July from some of its largest bondholders.
Current common shareholders will own about 2.5 percent of CIT if the exchange offer is completed. The remainder of the company would be owned by bond holders participating in the new debt exchange.
CIT had $54.09 billion in outstanding long-term borrowings as of June 30, including $13.85 billion due by June 30, 2010.
Jeffrey Peek, CIT's chairman and CEO, announced last week he would retire at the end of the year. Peek, 62, has worked at CIT since 2003. Some analysts said his departure was a sign the company might be heading toward a Chapter 11 filing.
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