Sotheby's Faces S&P Downgrade After Financial Review Plan

Sotheby’s (BID) had its debt put on review for a possible downgrade by Standard & Poor’s after the auction house said it’s reassessing its capital allocation and financial policies.

That Sotheby’s is considering using “incremental debt” to fund some operations or that it may sell real estate “may cause us to revise our assessment of the company’s financial or business risk profile,” S&P said in a release.

S&P’s current rating for Sotheby’s senior unsecured notes is BB+, which is below investment grade but the highest level of speculative grade.

The auction house, under pressure from investor Daniel Loeb to improve its returns, said in an e-mailed release today that its review of financial policies will be ready early next year.

The company continues to consider buying back shares and increasing dividends, it said.

Loeb’s Third Point LLC took a 5.7 percent stake, according to an Aug. 26 filing with the U.S. Securities and Exchange Commission. The hedge-fund company “intends to engage in a dialogue with members of the board or management” that may relate “to potential changes of strategy and leadership,” the filing said.

The shares are up 44 percent this year, and closed up 94 cents to $48.34 in New York. They remain below their high of $57.64, set in October 2007.

Other activists with an eye on Sotheby’s include Trian Fund Management LP, the firm run by activist investor Nelson Peltz, with a 3 percent stake, and Marcato Capital Management LLC, with more than a 6 percent stake accumulated in options and shares.

To contact the reporter on this story: Philip Boroff in New York at pboroff@bloomberg.net.

To contact the editor responsible for this story: Manuela Hoelterhoff in New York at mhoelterhoff@bloomberg.net.

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