Billionaire investor Carl Icahn, who had challenged CIT Group Inc's restructuring plan, said on Friday he was now backing the company's pre-packaged bankruptcy and would provide an additional $1 billion in credit to the lender.

CIT shares slumped almost 17 percent to 79 cents, after being halted for the news, as investors took the announcement as an indication that the pre-packaged bankruptcy plan would go ahead.

The cash-strapped commercial lender said the additional credit from Icahn could be drawn as debtor-in-possession financing in the event of a bankruptcy.

Earlier on Friday, CIT said it had reached an agreement for Goldman Sachs Group to reduce a $3 billion credit line to $2.125 billion but keep the line open during a bankruptcy.

The century-old lender also arranged for $4.5 billion in financing earlier this week as an addition to a $3 billion loan provided in July by a group of creditors.

CIT, which has been struggling to finance itself amid the credit crunch and recession, launched a debt exchange and restructuring plan earlier this month.

That offer expired on Thursday, and CIT said earlier on Friday that an independent ballot company was counting more than 150,000 investors' votes on its restructuring plan and debt exchange.

Icahn, who claims to be the company's largest bondholder, was not available to comment beyond his announcement. He had earlier this week criticized CIT's restructuring plan, claiming the company's debt would be worth more if its assets were allowed to run off under bankruptcy protection.

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.

(Reporting by Elinor Comlay; additional reporting by Joseph Giannone and Walden Siew, editing by Gerald E. McCormick)

Carl icahn