Investing.com -- On May 15, 2025, Moody’s Ratings announced a downgrade of Icahn Enterprises L.P.’s (NASDAQ:IEP) corporate family rating (CFR) and backed senior secured debt ratings to B1 from Ba3. IEP’s probability of default rating was also downgraded to B1-PD from Ba3-PD. Moody’s has changed the outlook from negative to stable.
This downgrade is a result of weak performance from IEP’s core subsidiaries, underwhelming investment results, and financial policies that Moody’s believes favor depositary unitholders over creditors. As of March 31, 2025, IEP’s net asset value was $3 billion, a decrease of about 39% from the previous year. This decline has negatively impacted its market value-based leverage and weakened coverage of upcoming debt maturities, aligning IEP’s credit profile more closely with B-rated investment holding companies.
The rating action also considers the decreased creditworthiness of IEP’s largest dividend-paying subsidiary, CVR Energy (NYSE:CVI), Inc. (B2 negative). Slowing economic growth has resulted in volatile crack spreads, which have affected the segment’s cash flow generation. The continued suspension of dividends within the energy segment has also put pressure on IEP’s already weak interest coverage ratio, which stood at 1.35x for the twelve months ending March 31, 2025.
Even though IEP’s real estate segment has provided significant distributions averaging around $40 million annually over the past three years, these cash flows alone are insufficient to cover the holding company’s roughly $332 million in annual interest expenses. Despite a decrease in cash flow and earnings generation, IEP’s liquid resources remain strong with $1,318 million in cash at the holding company, and $2,479 million in liquid investments as of March 31, 2025.
IEP’s operating companies have modest direct exposure to US trade policy, and are procyclical. The firm’s decision to use available cash flows for unitholder distributions, despite uncertain economic conditions, reflects a high financial risk tolerance. Currently, IEP’s distribution policy results in annualized cash outflows of about $100 million for depositary units not held by insiders. This, combined with the unpredictable cash election decision of its majority unitholder, Mr. Carl Icahn, increases the liquidity demands on the firm.
IEP’s B1 CFR reflects its substantial liquidity reserves and track record of activist investing, though these strengths are tempered by the firm’s high market value-based leverage, low interest coverage, and the key person risks associated with its reliance on its chairman and majority depositary unitholder.
The stable outlook reflects IEP’s substantial cash and liquidity resources which, given the sensitivity of its operating subsidiaries to the macroeconomic environment, will help it navigate increasing market volatility or a prolonged downturn.
IEP’s ratings could be upgraded if the Energy segment’s profitability improves, if its regular dividends are restored to levels commensurate with its historical targets, or if IEP’s other operating subsidiaries contribute meaningful and regular distributions that diversify its funds from operations. A sustained improvement in the Investment Funds’ performance or the adoption of financial policies that maintain the strength of its liquidity profile and lowers market value-based leverage below 40% on a sustained basis could also lead to an upgrade.
On the other hand, IEP’s ratings could be downgraded if market value-based leverage increases significantly, hampering the firm’s ability to execute its activist agenda, or if the holding company’s available cash and liquidity resources are significantly depleted, including due to an increase in unitholder distributions without a corresponding improvement to core operating performance. A further reduction in the creditworthiness or valuations of the firm’s principal operating subsidiaries could also lead to a downgrade.
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