Icahn Outlines His Plans for CIT

Posted by: Stacy Perman on October 28, 2009

After announcing a $6 billion loan offer to ailing CIT, Carl Icahn, one of the firm’s bondholders and a longtime corporate rattler, has begun putting a fine point on his plans for the struggling lender. Icahn, who has denounced CIT’s management and its restructuring plan as unfair to small bondholders, said he will pay bondholders 60 cents on the dollar in exchange for their rejection of CIT’s debt restructuring plan. For its part, the company has been trying to swat back its near-term debt maturities to the tune of some $5.7 billion and has been urging bondholders to swap existing debt for new debt and stock.

In an interview with the New York Post, Icahn said that his plan would involve propping up CIT’s bank and spinning off a separate management team to run it, saying:

“You would have an infinitely better chance at getting bank approval with new owners than these guys do.”

As CIT battles to avoid bankruptcy, the holiday retail season fast approaches and CIT is a main lender to some 1 million small and medium size businesses. As such it has been the biggest player in factoring – a form of debt financing used by those businesses that are unable to secure traditional loans or credit lines. This allows companies to sell their receivables at a discount in return for cash. A number of suppliers and manufacturers such as apparel makers deploy factoring as way to hold them over until retailers pay.

It will be interesting to see how CIT’s woes will impact retail sales that have already taken a hard hit due to the anemic economy.

Reader Comments

Amanda

October 29, 2009 10:37 AM

I couldn’t agree more, with the holidays whipping around the corner, CITs troubles can most certainly put a damper on those already cash-strapped retail manufacturers and suppliers that depend on this lender for working capital. At this point the only thing we know for certain with the unfortunate CIT situation is that we remain in a wait-and-see situation- but they appear to running out of options, pending any unexpected surprises. CIT has faced potential fallout since receiving $2.33 billion in taxpayer funds last December and another $3 billion in rescue financing last July. This latest $4.5 billion addition to its current credit facility comes in the 11th hour before the debt-exchange offer expires (and the vote for prepackaged bankruptcy should that fail). Regardless of the CIT outcome relying on a single firm as a lifeline - regardless of the size of that company - to source liquidity leaves your business’s viability unprotected should that company fail. With the importance of diversification in mind, many have begun to seek out an alternative source of receivables financing. At The Receivables Exchange, small and mid-size businesses can sell their receivable in a real-time auction marketplace to a global network of accredited institutional investors- able tap billions in liquidity in as little as 24 hours.

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