Exclusive: Inside edge - Trump advisor Icahn's big bet against biofuels credits

Wed Apr 12, 2017 7:27pm EDT
 
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By Chris Prentice and Jarrett Renshaw

(Reuters) - Billionaire investor Carl Icahn's oil refining company, CVR Energy (CVI.N: Quote), made a massive bet in 2016 that prices for U.S. government biofuels credits would fall - just before Icahn started advising President Donald Trump on regulations driving that market.

The size and specifics of the gamble - involving $186 million worth of biofuels credits the company said it needed at the end of 2016 to satisfy regulatory requirements - have not been previously reported by the media.

The credit system is designed to encourage the mixing of renewable fuels, such as ethanol, into gasoline or diesel. The government awards the biofuels credits to firms that produce such blends - and requires firms that don’t, such as CVR, to buy the credits from their competitors.

Icahn's firm positioned itself to slash those regulatory costs by tens of millions of dollars if biofuels credit prices declined, according to a Reuters review of CVR filings with the Securities and Exchange Commission and interviews with two brokers involved in the firm’s trading of biofuels credits.

Last year, in a counterintuitive trading strategy, Icahn’s refining firm postponed buying biofuels credits and instead sold millions of them – a bet that it could buy the credits it would need later at lower prices, according to the two brokers and CVR’s year-end SEC filing.

That strategy looked prescient, starting in December, as prices for biofuels credits fell in response to a series of political events tied to the election of Trump. These included his appointment of Icahn - a vocal critic of biofuels credit mandates - as an unpaid “special advisor to the President” on regulatory issues.

In February, biofuels credit prices fell again after the famed activist investor proposed policy changes to the White House that would free certain refiners - including CVR - from their obligation to buy the credits.

Icahn, who owns an 82-percent stake in CVR Energy, did not respond to repeated phone calls and emails seeking comment. He has said previously that his advocacy on biofuels regulation is not self-serving because it would benefit a broad swath of the U.S. refining industry, including some of CVR's competitors.   Continued...

 
FILE PHOTO: Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York, U.S. on February 11, 2014.    REUTERS/Brendan McDermid/File Photo