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Icahn Enterprises No Longer Investment Grade

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Icahn Enterprises No Longer Investment Grade

Icahn Enterprises has lost ground in the last year, and on Tuesday, May 17th, it lost even more. 

The S & P have downgraded it from Investment Grade to Junk Status.

 

So How Far Exactly was Icahn’s Credit Rating Lowered?

It was only a small cut—from triple B-minus to double B-plus—but it was the one that counted. 

That’s the exact threshold for the S & P where the Investment Grade ends and Junk Status Begins. 

Icahn Enterprises has now entered the happy ranks of those which must offer higher yields on their bonds in order to offset the increased danger of default on said bonds.

The S & P Say that Increased Loan-to-Value Ratio Played a Part in the Decision

Clayton Montgomery of S & P Global Ratings says that the agency expects Icahn Enterprise’s loan-to-value ratio to remain at a high, around 45 percent to 60 percent in the next year. 

He says that a part of this change in leverage comes from Icahn’s portfolio depreciating while some of it comes from the fact that the Icahn Enterprises just has substantially less cash than it used to.

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Icahn Enterprise’s Loan-to-Value Ratio Has Been High Since at Least March

At the end of March, the Loan-to-Value ratio of Icahn Enterprises was 50 percent. 

However, by the end of the quarter in May, the number had only grown. 

It was then around 53%, due to a $600 million decrease in publicly-traded positions. 

Given the fact that he was on their MarketWatch, it seems the agency may just have lost patience with the declines in his worth.

Speaking of the decline, Icahn Enterprises lost 12.8 percent of its investment segment value this quarter, after losing worth in 2015 and 2014 as well.

S & P warns that any further loss in investment segment value would count as a black mark on his record, for both its effect on the Loan-to-Value ratio and for the loss of further liquidity on the part of Icahn Enterprises.

Speaking of Liquidity, Icahn Enterprises is Losing it

Back in March of 2015, Icahn Enterprise’s investment segment value and cash were enough to cover 96 percent of its debt. 

By December, that number was down to 65%, and by March of this year, that number was down to 37 percent. 

This too probably contributed to the negative change in the Icahn Enterprises credit rating.

Furthermore, Icahn Enterprises’s shares have Gone Down in the Last Twelve Months.

Not including dividends, their shares have fallen almost three-quarters, at 74.1 percent.

Positions that Icahn Sold Out of in This Quarter

  • Gannett Co Inc (GCI.N)
  • Tegna Inc (TGNA.N)
  • Mentor Graphics Corp (MENT.O)

And Then, of Course, There Was the Biggest and Most Controversial Position of All

Icahn sold out of a $4.8 billion Apple position which just last year had been his largest outside holding. 

This decision temporarily drove the share price of Apple down, and Warren Buffett himself told off the media for paying Icahn too much mind. 

It later turned out that Buffett’s Berkshire Hathaway Inc. had a $1 billion stake in Apple.

The S & P had Previously Threatened to Downgrade Icahn Enterprises

Following the loss of a minimum of $1.4 billion in value for Icahn Enterprises, S & P informed Icahn back in February that a downgrade might be coming. 

Shortly after they finally made good on their threat, his stock dropped 2%.

This is All Very Ironic, Happening to the Man Known for the Icahn Lift

The so-called Icahn Lift is a Wall Street idiom referring to a phenomenon in which a company or its stock gets a lift in price when Carl Icahn buys stock with an eye to take over and repair management. 

In fact, he has quite the reputation as either a corporate raider or as a model for shareholder’s making their voices heard and holding management accountable. 

He is also, in spite of Icahn Enterprises’s current difficulties, the United States’ 22nd richest person as ranked by Forbes, and he is worth $20.5 billion dollars.

Icahn the Man is Not a Single-Faceted Hedge-Fund Gambler

Though his enterprises are going through a downturn at the moment, Icahn makes a number of financial donations to Princeton University, his alma mater. 

He has also received civic awards for contributing to medical research and public health.

Conclusion

Did Icahn Enterprises earn its current credit rating?  Almost certainly, given its debt, its losses, and its crippled liquidity. 

How this will affect the reputation of Icahn the man remains to be seen. 

It may be that, ironically, he is better at telling other companies’ management how to fix their companies than he is at managing his own portfolio and investments.

Regardless, those who enjoy gambling with junk bonds have a brand new, shiny opportunity in Icahn Enterprises as of May 17th.

 

 

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