S&P warns it may cut Icahn Enterprises to junk status

Feb 19, 2016, 6:52 PM EST
Source: Muhammad Sameer/flickr

S&P warned it may cut Icahn Enterprises to junk status following major portfolio losses over the last few months.

Bloomberg reports:

Icahn Enterprises shares have tumbled about 50 percent in the past 12 months, with sharp declines in its commodity holdings, including oil and gas producer Chesapeake Energy Corp., natural gas exporter Cheniere Energy Inc. and copper miner Freeport-McMoRan Inc. Shares traded down 9.7 percent at $49.55 at 2:45 p.m. in New York. Standard & Poor’s placed its BBB- issuer credit rating of Icahn Enterprises on CreditWatch with negative implications, and its BBB- issue rating on the company’s senior unsecured debt on CreditWatch with negative implications. BBB- is the lowest level of investment grade rated by S&P, so dropping a notch would place Icahn Enterprises into non-investment grade junk territory. Placing it on CreditWatch “indicates that we believe there is at least a one-in-two likelihood that we may lower the ratings within the next 90 days,” S&P said.

Icahn Enterprises has more than $12 billion in total debt. Its bonds have been declining in the past year. The company’s 5.875 percent bonds maturing in 2022 are hovering near the lowest levels since the debt was sold in 2014, after falling 16 percent over that period to 86 cents, according to data compiled by Bloomberg. Falling investment values within the portfolio “have very likely led to the firm exceeding a 45 percent loan-to-value ratio,” S&P said in its statement, underpinning its rating. It estimated Icahn Enterprises has lost at least $1.4 billion since Sept. 30, amid market routs and “the significant deterioration in commodity-related investments.” Icahn Enterprises is a master-limited partnership that holds stakes in the billionaire activist’s investments in industries including autos, energy, metals, rail cars, casinos, food packaging, real estate and home fashion. The billionaire owns about 89 percent of the publicly traded security, and Icahn himself is its chairman. S&P believes Icahn “could support the company’s capitalization at some point in the future through an equity raise” to improve its creditworthiness, but isn’t assuming that in its rating action.

Reuters writes:

Things could improve if Icahn can sell the unfinished Fontainebleau casino on Las Vegas' strip, which the investor bought out of bankruptcy in 2010, S&P said. But S&P also worried that Icahn could reinvest the money from a sale, instead of keeping it in cash. Icahn Enterprises holds stakes in the companies that the investor has bet on and is often seen as a proxy for his fund's performance, which is not publicly disclosed. Many prominent hedge fund managers are nursing heavy losses this year due to bets on energy stocks. They may be vulnerable to investor withdrawals, analysts have said. Icahn stopped managing outside client money in his hedge funds several years ago, leaving his family office to invest his personal fortune, which Forbes puts at $22 billion. Still, this warning of a possible downgrade is bound to sting the 80-year old investor who has delivered some of Wall Street's best returns over the last decades and is as active as ever in pushing corporations into shaking up their business plans. Icahn has said several times in the last few months that he has no plans to retire.