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Updates to add CIT's acknowledgment of letter, latest share price.





CIT Group


(CIT) - Get CIT Group Inc. Report

board of directors has received a stinging letter and a $6 billion loan offer from investing legend Carl Icahn, who claims to be the company's largest creditor.

Icahn claims CIT is offering its largest bondholders a chance to lend it money on what he says are excessively generous terms in exchange for their agreement to vote for the company's reorganization plan.

"This loan is a bad-faith attempt to buy votes for the company's Exchange Offer/Plan of Reorganization, since all prospective lenders must vote their CIT debt in favor of the company's plan in order to receive an allocation of the new loan," Icahn writes.

CIT sent out a press release late Monday afternoon acknowledging its receipt of the letter.

"This letter is CIT's first indication of Mr. Icahn's interest in underwriting an alternative financing and the Company intends to ask Mr. Icahn for more information regarding his proposal," CIT's release stated.

Aside from objecting to the loan proposed by the company as too pricey, Icahn says in his letter it would "bail-out" the board, by protecting them from "certain claims that shareholders and bondholders would have against them," in addition them to leaving them in place.

"As CIT's largest creditor we see no reason that the current Board (whose negligence created this mess in the first place) should continue to control our company," Icahn writes.

At the end of his letter, Icahn offers a $6 billion loan with an upfront fee of 2.5%, or $150 million, which he says is half the fee currently being offered to prospective lenders.

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CIT shares were up nearly 10% late in the session to $1.23. Volume was more than 120 million shares, ahead of the issue's three-month daily average of 108.1 million.

Icahn's letter follows an announcement from CIT late Friday that it had sweetened the terms of proposed offers to its bondholders to help the company reduce its debt and avoid a disorderly bankruptcy. Bondholders have until Oct. 29 to vote on the offers, which could lead to either an out-of-court restructuring or a "pre-packaged bankruptcy," in which most bondholders would have agreed to certain terms ahead of time.

CIT, a major lender to small- and mid-sized companies, ran into a funding crisis over the summer after the Federal Deposit Insurance Corp. declined to guarantee its debt, as it had done for larger lenders like

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Written by Dan Freed in New York