Carl Icahn slams CIT restructuring, offers $6B loan

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NEW YORK (CNNMoney.com) -- Billionaire investor Carl Icahn sent a scathing letter to troubled lender CIT on Monday, calling its restructuring plan "a bad-faith attempt to buy votes."

Icahn, a legendarily activist investor, is a CIT bondholder and is trying to unseat what he calls the company's "incompetent and unconscionable" board of directors.

Icahn's letter skewered CIT's (CIT, Fortune 500) $6 billion reorganization plan, in which bondholders can exchange current notes for a portion of a series of newly-issued secured notes and/or preferred shares. Instead, he offered to underwrite an alternative $6 billion loan.

Icahn claims the existing plan offers unsecured bondholders below-market rates in exchange for their support for the restructuring, and the company's largest bondholders will have access to the current plan at the expense of thousands of their smaller counterparts.

"Even worse," wrote Icahn, "the plan would leave a majority of the existing board, or their chosen successors, in control of our company for years to come."

In a written response, CIT said that this was the first it has heard about any funding proposal from Icahn, and that it will ask him for more information about his plan.

The credit-market downturn has battered the short-term debt that the company, one of the largest lenders to small businesses, once used to fund itself. CIT received $2.3 billion from TARP last fall, but even that injection of cash failed to keep the company above water.

Earlier this month, CIT said it could file for Chapter 11 bankruptcy if at least $5.7 billion worth of debt is not cleared off its balance sheet.

Icahn says his loan would save the company $150 million, and that his plan would not require a vote in favor of the reorganization plan as a pre-condition for lenders to take part in the financing.

He added that the existing plan lets current management off the hook for what he calls mismanagement. "The plan would ... give the board releases against certain claims that shareholders and bondholders would have against them, and I believe there are many," Icahn wrote.

Icahn noted he has a "strained relationship" with CIT, but added that if the company doesn't want to work with him he is "certain that there a number of other banks who would also be eager to underwrite the financing, with large savings to CIT, as long as there is not a vote-buying constitution."

CIT shares jumped on the news, rising 12.5% to trade at $1.26.