Pershing Square Holding Ltd. was put on review by Standard & Poor's ratings services, after its substantial loss of $1 billion in Valeant Pharmaceuticals. The rating service also acknowleged the right timing of Bill Ackman to stengthen the firm's liquidity by selling its assets in Mondelez International.
Following a massive plunge of Valeant Pharmaceuticals share on Tuesday, Pershing Square lost more than $1 billion in a single day. The hedge fund's net asset value (NAV) was sharply reduced from $5.3 billion to $3.8 billion. This loss also increased the debt-to-total-assets to above 20% from 15%.
S&P credit analysts, Trevor Martin, wrote in a statement as quoted by Market Watch, "We placed the ratings on CreditWatch negative to reflect the substantial drop in Pershing Square Holdings' net asset value over the past five months as a result of very weak investment performance."
Pershing Square has been a major shareholder of Valeant Pharmaceuticals since February last year, when the hedge fund purchased the company's stock at $161 a share. Bill Ackman's hedge fund is now the largest shareholder of Valeant with 9% stakes. Since last week, senior partner and vice chairman of Pershing Square Stephen Fraidin also joined Valeant's board
Shares of Valeant Pharmaceutical has been reduced by 89% from its high position of $263.81 in August to $33.54 on Tuesday. Bill Ackman and Pershing Square which owned 30,711,122 of the company's shares experienced a staggering loss of $1.09 billion with the massive decline. Valeant also plunged another 12% on Thursday's closing at $29.69, adding further loss for Pershing Square.
Afterwards, rating agency Standard & Poor's will put the Pershing Square Holdings BBB ratings on review as its weak investment returns and a sharp drop in its net asset value. Reuters reported that S&P analysts took note that the hedge fund has lost money on 11 of its 12 positions since October 2015.
"The fund's performance since we initiated the rating on PSH in May 2015 has been weaker than peers, in contrast to its stellar track record in previous years," the analyst wrote. S&P expected to decide on Pershing Square's credit rating within three months.
The rating agency underscored Ackman's prominent role in the Pershing Square exposing the fund to key man risk. S&P also acknowledged proactive steps by management in respond to Valeant's crisis by selling its assets to strengthen the fund's liquity.
With regards to Valeant, S&P flagged the incremental risk of bankruptcy. According to Bloomberg, Valeant seeks a waiver from banks on its credit agreements.
Following Valeant Pharmaceuticals meltdown, S&P rating service puts Pershing Square Holdings, the company's major shareholders, on review. The rating is expected to be decided within three months.
Join the Conversation