Bill Ackman’s bad week just keeps getting worse.
After watching one of his top stocks, Valeant Pharmaceuticals International Inc., get mauled again, Ackman now confronts another indignity: news that the publicly traded security of his hedge fund, Pershing Square Holdings Ltd., might be headed for the junk-bond yard.
Only two days after Valeant handed Ackman a paper loss of about $764 million related to the common shares he owns, Standard & Poor’s warned it might cut Pershing Square’s credit rating to the cusp of junk-bond status.
The development is the latest in the months-long saga surrounding Valeant and Ackman, who’s long been one of the drug company’s biggest champions. Since August, when Valeant began the slide that has now erased almost 90 percent of its market value, the fortunes of the company and the hedge fund manager have become increasingly intertwined.
On Thursday, as Valeant sank an additional 12 percent, Ackman reiterated his support of the company -- and said his investors are mostly standing by Pershing Square Capital Management. Ackman’s fund is Valeant’s third-biggest shareholder with a stake of about 9 percent, including 6.3 percent of the outstanding common shares.
Valeant Problem
Valeant is a problem, but one that he knows how to handle, Ackman told CNBC Thursday, adding that widespread redemptions from Pershing Square Capital weren’t happening, and investors had pulled just 2 percent of assets from the fund on Feb. 15, the latest opportunity they had to redeem. Their next chance to withdraw funds will come in mid May.
Still, S&P warned that it may cut its debt rating on the listed arm of Pershing Square, putting its BBB rating on the company on watch for a potential downgrade after the plunge in Valeant eroded its net asset value over the past five months, according to a statement from the ratings agency Thursday. Its current grade is two levels above speculative -- or junk -- a rating that would mean the company faces major ongoing uncertainties, or exposure to conditions that could make it less able to meet its financial commitments.
A spokesman for Pershing Square declined to comment on the potential downgrade.
After months of turmoil, Valeant’s -- and Ackman’s -- woes intensified on March 15, when the drugmaker cut its 2016 guidance and warned it may breach some of its debt agreements if it can’t file its annual report on time. During a two-hour call with analysts, Chief Executive Officer Mike Pearson, not long returned from medical leave, was questioned about why he was the right man to lead the company.