Icahn Enterprises May Be Cut to Junk by S&P on Portfolio Drop

  • Company is Carl Icahn’s publicly traded holding company
  • S&P placed its BBB- issuer credit rating CreditWatch Negative

Icahn Enterprises LP, billionaire investor Carl Icahn’s publicly traded holding company, may be cut to junk after losing “a significant amount of value in the last several months,” Standard & Poor’s Ratings Services said Friday.

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.

Total Debt

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.

Negative Trends

Moody’s Investors Service Inc., in its Jan. 25 review of its Ba3 credit rating for Icahn Enterprises, said negative trends had weighed on the company in the past year, including the decline in its “energy, rail and automotive segments that have contributed to declining asset value, rising market value based leverage, and reduced income.”

Moody’s said the holding company’s recent acquisitions of Uni-Select Inc., Ferrous Resources Ltd., and Pep Boys further concentrated it in industries under pressure, while the deals reduced its cash and ability to make opportunistic acquisitions.

Icahn owns about 11 percent of Chesapeake, the second largest U.S natural gas producer. The company has been cutting jobs, restructuring debt and trying to sell assets as tumbling energy prices make it increasingly difficult to bear a debt load that Standard & Poor’s earlier this month described as “unsustainable.”

Cheniere, Freeport

He is the biggest shareholder at Cheniere with almost 14 percent. The company, which hasn’t posted an annual profit since it started reporting earnings in 1998, is preparing to export liquefied natural gas from the first unit at its Sabine Pass terminal in Louisiana in late February or early March.

Icahn is also the largest shareholder at Freeport-McMoRan with 9 percent. The stock fell to a more than 20 year low last month and continues to be highly volatile. Chief Executive Officer Richard Adkerson said last month the miner will consider selling any asset -- in full or in part -- to help shore up its heavily indebted balance sheet. Moody’s and S&P both cut its credit rating to junk, and this week the company followed through on its asset sale pledge by selling an additional $1 billion stake in its Morenci open pit mine in Arizona to Sumitomo Metal Mining Co.

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