Icahn Proposes Own CIT Bankruptcy Plan

NEW YORK (TheStreet) -- Financier Carl Icahn on Friday proposed a new prepackaged bankruptcy plan for CIT Group (CIT) in an open letter to the company's bondholders Friday.

CIT proposed a plan of its own Oct. 1, but Icahn, who stated in an Oct. 16 letter to CIT's board that he is the company's largest creditor, objects to several elements of the company's plan, above all because it protects the current board, which Icahn blames for the company's failure.

Icahn's proposal would reconfigure the 10-person board so it would include no more than three members of the current one. He also wants to ensure the majority of cash coming into the company is used to pay creditors. He argues that "myriad carve-outs and other exceptions," allow much of the money to be used for other purposes. Icahn faults the board for failing to cut back such "perquisites" as "large bonuses as well as donations to personal causes" which he says "were not cut back even when the company kept bleeding our money on the path to bankruptcy."

Finally, Icahn proposes to give CIT nine months to try to transfer many of its loans into a CIT-owned bank headquartered in Utah. If the government does not permit the transfer, the loans would be wound down, with proceeds used to pay bondholders.

Also in the letter, Icahn criticized for at least the third time a $3 billion loan CIT received from Goldman Sachs (GS) last year, calling it "one of the worst financings in corporate history."