AR – Base Case CDS 121bps, Base Case iCDS 106bps, Negative Case iCDS 119bps, 2029 7.625% Bond YTW of 6.135%, iYTW of 5.167%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
November 6, 2024
- Cash bond markets are overstating credit risk with a YTW of 6.135% relative to an Intrinsic YTW of 5.167%. Meanwhile, Moody’s is overstating the firm’s fundamental credit risk, with its Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. AR’s compensation metrics framework should drive management to focus on all three value drivers, margins, asset efficiency and growth, which should lead to Uniform ROA expansion and increased cash flows to service debt obligations. In addition, the firm’s devoted leverage metrics should focus management on limiting risk to credit holders. Furthermore, management has low change-in-control compensation relative to their annual compensation, indicating they may not be incentivized to pursue a takeover or accept a sale of the company, decreasing event risk for creditors.
- Earning Call Forensics™ of the firm’s Q3 2024 earnings call (10/31/2024) highlights that management is confident AI power demand growth is expected to add an uplift for LNG demand of 20 Bcf by the end of the decade and that they expect a $300 million decrease in total capital budget in 2024 while maintaining production levels.
