BA – Base Case CDS 103bps, Base Case iCDS 16bps, Negative Case iCDS 27bps, 2028 3.250% Bond YTW of 6.173%, iYTW of 4.955%, Baa2 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

October 31, 2023

  • Credit markets are overstating BA’s credit risk with a YTW of 6.173% relative to an Intrinsic YTW of 4.955%, while CDS markets are overstating risk with a CDS of 103bps relative to an Intrinsic CDS of 16bps.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers: margin expansion, asset efficiency, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. Additionally, management has no change-in-control compensation, indicating it is unlikely to be a target for a buyout or acquisition, reducing event risk for creditors.

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