Business

Published: Saturday October 31, 2009 MYT 8:41:00 AM
Updated: Saturday October 31, 2009 MYT 11:24:50 AM

CIT Group receives $1 billion loan from Icahn


NEW YORK (AP): Commercial lender CIT Group Inc. said Friday that billionaire investor and bondholder Carl Icahn agreed to support the company's restructuring plan and provide it with a $1 billion line of credit.

Icahn has been an outspoken critic in recent weeks of New York-based CIT Group's plan to restructure its debt in an effort to avoid collapse. CIT, one of the largest lenders to small and midsized business, has been trying to reduce its near-term debt burden by $5.7 billion.

On Wednesday, CIT received a $4.5 billion line of credit from lenders and other bondholders who had already provided it with $3 billion in financing over the summer.

Thursday marked the last day most CIT debtholders could agree to exchange their bonds for new debt that matures later and stock. Results of that exchange have not yet been released.

The company said earlier Friday it was still tabulating the votes.

Even if bondholders approve the debt restructuring plan, the company could still file for bankruptcy protection. At the same time they were asked to agree to swap their debt, bondholders were also asked to approve a prepackaged bankruptcy plan.

Icahn had railed against the company's plan over the past week, calling it unfair to small bondholders. He even offered to purchase CIT's debt for 60 cents on the dollar if debtholders agreed to reject CIT's exchange offer.

A failure by CIT would hurt an economy already struggling to recover, especially the retail sector. The company is a short-term financier to 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.

CIT has been struggling as its costs to borrow money have eclipsed the income it generates from lending money. CIT lost its primary source of funding last year when the commercial paper market nearly collapsed at the peak of the credit crisis and has yet to recover.

Shares of CIT dropped 17 cents, or 16.7 percent, to 78 cents in afternoon trading.

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