AR – Base Case CDS 91bps, Base Case iCDS 111bps, Negative Case iCDS 134bps, 2029 7.625% Bond YTW of 6.513%, iYTW of 5.723%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
May 17, 2024
- Credit markets are overstating credit risk with a YTW of 6.513% relative to an Intrinsic YTW of 5.723%. Meanwhile, credit markets are 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.
- Earnings Call Forensics™ analysis of the firm’s Q1 2024 (04/24/2024) earnings call highlights that management is confident they have over 20 years of premium inventory and that they have elected to sell a greater portion of their waterborne barrels in the spot market rather than enter long-term contracts.
