IEP Stock Rises; Banks Offer Carl Icahn Some Relief After Short Seller Saga

After months of negotiations, activist investor Carl Icahn and some major banks finalized amended agreements on Sunday that untie his personal loans from the trading price of the shares of his company Icahn Enterprises (NASDAQ:IEP), the Wall Street Journal reported. IEP shares were up about 5% in Monday’s pre-market trading but have lost over 40% of their value since short-seller Hindenburg flagged some concerns in May.

Among other issues, Hindenburg said that Icahn’s pledge of about 60% of his stake in IEP as collateral for margin loans is risky because such a form of financing could trigger margin calls if the stock declines. The report noted that Icahn has $3.7 billion in loans and hasn’t yet liquidated his investments to satisfy margin calls.

To address the concern over margin loans, Icahn has now agreed to provide additional collateral as IEP stock has significantly declined. The additional collateral of about $6 billion includes $2 billion of Icahn’s funds. As per an SEC filing, the amended loan agreement is secured by pledges of a total of 320 million depositary units of IEP owned by Icahn and $2 billion of interests owned by Icahn in the private investment funds managed by Icahn Enterprises.

Further, Icahn has agreed to a repayment plan, pursuant to which he will pay the banks $500 million in September, eight quarterly payments of $87.5 million a year after that, and the remaining $2.5 billion three years from now. The report noted that the only thing that could now cause a margin call is movement in the net asset value of Icahn’s investments, comprising companies and stocks.

Overall, the amended agreements will take the pressure off IEP shares as they would help in avoiding the forced sell-off of the stock to meet margin calls.  

In its May report, Hindenburg accused Icahn Enterprises of inflating asset valuations. IEP shares have declined 43% year-to-date.

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