CIT disputes Carl Icahn letter

Says it misrepresents restructuring plans

Heath Combs -- Furniture Today, October 28, 2009

NEW YORK — Troubled lender CIT Group said Tuesday evening that an open letter by investor Carl Icahn contained several inaccuracies about the company's restructuring plans.

Icahn is offering to loan CIT Group $4.5 billion in place of a debt restructuring plan the troubled lender has proposed. Icahn said CIT Group is overpaying for the loan it has proposed as part of its reorganization, among other problems.

Icahn said his offer would expire on Tuesday and threatened to sue the company if it chooses an existing bondholder plan, according to a Bloomberg news report.

CIT, an important lender to the furniture industry, said its debt exchange offers and plan of reorganization will generate capital and liquidity, and that all bondholders would be treated equally and would receive significant equity.

Addressing points in the Icahn letter, CIT said that its corporate governance structure will have a majority of new independent members. CIT added that its plan would also accelerate cash flows to repay debt.

CIT again amended its offer last week for a debt exchange to gain support for its restructuring plan in an effort to fend off bankruptcy. The company increased the interest rate payable on its Series B notes from 9% to 10.25% and extended the date for acceptance from Oct. 29 to Nov. 5.

Two weeks ago, CIT had upped its offer on Series B notes from to 9% from 7% to entice more support from holders of its bonds.

One part of the company's exchange offer expires on Thursday.

In an open letter to CIT bondholders issued last week, Icahn, who reports he is the largest holder of CIT debt, said the company is trying to win support for reorganization by overpaying for a loan from an existing lender.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case. Even in a traditional bankruptcy the company's assets would be protected and a run-off of assets would prove extremely profitable for bondholders," he said in the letter.

Icahn said the company's bonds would be worth at least 80% to 85% of their par value if they were run off in a controlled way.

The alternative is an exchange offer or bankruptcy in which the company's huge cash flows are reinvested into an operating business controlled by the company's board of directors, he said.

"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," Icahn said in the letter.

He said the plan also keeps corporate overhead several hundred million dollars higher than it needs to be, and that CIT's current management didn't cut back bonuses to board and senior management as the company's funding problems began.

"Given the company's track record, chills run through me thinking of the current team investing our money," Icahn said in the letter.

He suggests that CIT reconfigure its board and if it cannot transfer vendor and trade finance platforms to a bank holding company then it should wind down those operations and pay proceeds to debt holders.