Icahn Offers to Buy Certain Classes of Debt from CIT Group Bondholders

Billionaire investor Carl Icahn said on Tuesday he will offer some protection to smaller bondholders of the  CIT Group (CIT),  if they would vote with him to reject the company’s plan for reorganization. The move, which is likely to cause contention, comes as the nation’s largest lender to small and mid-sized businesses tries to restructure its debt by getting debtholders to exchange their notes or to agree to a prepackaged bankruptcy.

Mr. Icahn, who owns $2 billion in CIT debt – and strongly believes that CIT’s offer as currently structured provides no protection for noteholders going forward, is offering smaller debtholders the option to sell their debt to him for 60 cents on the dollar within 30 days of CIT’s exchange failing, if they vote against the co.’s proposed restructuring.

Mr. Icahn’s deal – which does not include the purchase of floating rate notes, foreign-issued notes or U.S. fixed-rate notes whose principal exceeds $100 million – essentially assures bondholders a floor price in the event the notes trade lower.

“Our tender offer provides downside protection to those noteholders willing to stand up to the company and reject their plan in the face of the scare tactics being used by the company,” he said in a release.

Mr. Icahn also said that CIT’s proposed restructuring will destroy the value of the company and that the current Board of Directors running the firm should not be able to retain control of the company.

“I believe that CIT’s offer…is likely to result in the deterioration of value and business as usual for the current Board of Directors and management,” he said.

On Monday, CIT, which is trying to reduce its near-term debt maturities by $5.7 billion, sweetened its exchange offer for a second time in two weeks in an effort to get more participation.

Icahn’s offer would go into effect only if CIT’s debt exchange offer, which expires Thursday, fails.

CIT’s bonds declined on Tuesday. The company’s 5.2%t bond due 2010 fell almost one cent to 63.05 cents on the dollar, according Reuters – citing MarketAxess.