Standard & Poor’s has cut the investment firm controlled by billionaire Carl Icahn to junk status.
Icahn Enterprises, or IEP, which handles Icahn’s money, saw its unsecured debt rating fall to “BB+” from “BBB-.”
“The downgrade reflects IEP’s elevated LTV [loan to value] ratio, which we now expect to remain between 45%-60% over the next 12 months,” S&P Global Ratings credit analyst Clayton Montgomery said Tuesday.
The agency said that most of IEP’s problems came from the deterioration of its portfolio (especially with positions like CVR Energy and Federal-Mogul) and its general lack of cash.
“We estimate that after quarter-end through May 13, 2016, IEP’s large publicly traded positions declined by approximately $600 million, which would result in an LTV ratio of about 53%, holding all else equal,” S&P’s release said.
S&P had warned in February that this may happen. Back then, the agency said IEP could probably sell the Fontainebleau resort in Las Vegas to raise some cash, which it reportedly started trying to do at the end of last year.
But even then, things were going to be tough.
“However, given the magnitude of the decline in the portfolio, this will likely not improve the company’s LTV ratio to back below the 45% threshold,” S&P said in February.
“Furthermore, we believe that the firm may redeploy those proceeds back into investments, which would be less beneficial to the firm’s LTV ratio than if management kept proceeds in cash. We net all of Icahn’s cash against debt in our leverage calculation.”
In other words, S&P was worried that even if Icahn did get the cash, he’d spend it.