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Billionaire investor Carl Icahn, who had been trying to derail CIT Group's efforts to launch a restructuring plan, said on Friday he was now backing the lender's pre-packaged bankruptcy, making a filing as soon as this weekend more likely, analysts said.
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Photo by: Ernst Moeksis |
Shares in cash-strapped CIT [CIT
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] slumped 22.5 percent to 73 cents, after being halted for the news, as investors took the announcement as an indication that the pre-packaged bankruptcy plan would go ahead.
"It looks like everything is pointing to a prepack," said Adam Steer, an analyst at CreditSights in New York. "Their best option is to turn off the lights and work their balance sheet down. It's pretty clear at this point."
Icahn, who says he is CIT's largest bondholder, said in a statement that he changed his mind on the pre-packaged bankruptcy plan because he was pleased by changes the company made, including establishing an accelerated process for appointing new directors.
"These changes significantly improve corporate governance and cash flow protections, and are positive for the company and all noteholders," he said in the statement.
Icahn's announcement came as CIT was waiting for the results of an offer it made to investors earlier this month: an exchange of bonds for new securities and equity, avoiding a bankruptcy filing; or approval of a restructuring plan before the company files for bankruptcy.
Icahn had sought to scupper the restructuring plan, and he made bondholders a rival tender offer, because he said CIT bondholders would recover more money if its assets were allowed to run off under bankruptcy protection.
The offer, which expired on Thursday, is not expected to have attracted enough votes to permit a debt exchange, meaning a bankruptcy filing could come as soon as this weekend, analysts said.
The company said earlier on Friday an independent ballot-counting company was counting more than 150,000 votes.
Whatever the outcome of the vote, Icahn will not walk away from the exchange offer he made to small bondholders, he said in his statement.
"We want to make sure that they feel like they were not disadvantaged by our now supporting the plan," he said.
CIT's arrangement with Icahn also includes provision for an additional $1 billion in financing from Icahn Capital.
The lender said the additional credit could be drawn as debtor-in-possession financing in the event of a bankruptcy.
The upfront cost for this financing could be 40 percent lower than credit the company secured earlier in the week, Icahn said in his statement.
The century-old lender on Wednesday arranged for $4.5 billion in financing from a group of creditors as an addition to a $3 billion loan arranged in July.
Earlier on Friday, CIT also said it had reached an agreement with Goldman Sachs Group that would reduce a $3 billion credit line to $2.125 billion but, critically, keep the line open during a bankruptcy.
Icahn was not available to comment beyond his announcement.
CIT bonds were little changed in light trading.
CIT has about $65 billion in liabilities through mid-June and $800 million of debt coming due next week.
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