Carl Icahn restructured the multi-billion dollar personal loan that he had taken against shares of his investment company Icahn Enterprises after a report by short-sellers about his debts led to a drop in stock prices.
Icahn Enterprises announced on Monday that the octogenarian had agreed with five major banks to convert his margin debt into a term loan of three years. The new terms call for him to pledge almost all of his Icahn Enterprises shares as collateral (95 per cent, up 60 per cent from now) and make a principal payment of $500mn before September 1.
The amendment highlights the financial pressure Icahn is under since Hindenburg Research released a report in May on his borrowing. According to the short-seller’s report, Icahn is vulnerable to margin calls that force him to sell shares or pledge more if Icahn Enterprises share prices fall. Stocks were down by more than 50% following the report.
Icahn is the owner of about 85 percent of Icahn Enterprises. This conglomerate includes businesses in refining, car parts, and also has a portfolio that he manages.
The new loan will remove provisions that are tied to the share price of Icahn Enterprises. Instead, it will require more collateral only when Icahn Enterprises’ net asset value drops below a loan-to-value percentage.
After the news of restructuring, its shares rose by more than 13 percent in early Monday trading. The amendment does not only relieve the shareholder from the threat of a continuing decline in share prices, but also contains many other burdensome terms.
Icahn has also been asked to pay $87.5mn quarterly in principal beginning September 2024, and $2.5bn at the end of his loan in 2026.
Icahn Enterprises, which represents more than 95% of Icahn’s total outstanding shares, will be pledging $2bn in investments outside the conglomerate as collateral.
Hindenburg’s report captured the attention of the investment community as an example of a activist taking on another . Hindenburg claimed that Icahn Enterprises had an overvalued balance sheet and held assets with inflated values. Icahn responded by calling the report “self serving”.
He admitted to making mistakes in the past, and said he shouldn’t have continued his short bets, which cost his group $9bn in six years.