Skip to main content



) -- Financier Carl Icahn on Friday proposed a new prepackaged bankruptcy plan for

CIT Group

(CIT) - Get CIT Group Inc. Report

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) - Get Goldman Sachs Group, Inc. Report

last year, calling it "one of the worst financings in corporate history."

That loan is set to be amended to terms more favorable to CIT, according to a report Friday in

The Wall Street Journal

, which said the two companies had "reached a tentative agreement," citing anonymous sources.

TheStreet Recommends

Goldman spokesman Michael DuVally declined to confirm the report, saying only: "Goldman Sachs continues to work constructively with CIT and its creditors to provide the company with a sound and workable financing facility."

As usual, Icahn didn't pull any punches. As part of his criticism of the current board and its proposal, he stated: "This is the same Board and senior management team that has presided over the demise of our company by making Titanic-sized errors, some of which we believe were the result of gross negligence."

CIT has been scrambling to cut its debt in response to a funding crisis that began in earnest after it was denied access to a government program that guaranteed the debt of larger lenders, including

General Electric

(GE) - Get General Electric Company Report

and large banks like


(C) - Get Citigroup Inc. Report


Bank of America

(BAC) - Get Bank of America Corp Report


Wells Fargo

(WFC) - Get Wells Fargo & Company Report

. Bondholders have until midnight Oct. 29 to agree on the proposed debt exchange, or some type of bankruptcy filing appears likely. CIT has proposed a debt exchange that could keep the company out of bankruptcy, but Icahn rejects the exchange idea.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case," Icahn writes.


Written by Dan Freed in New York