BA – Base Case CDS 120bps, Base Case iCDS 59bps, Negative Case iCDS 94bps, 2029 3.200% Bond YTW of 6.004%, iYTW of 5.054%, Baa2 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

May 21, 2024

  • Cash bond markets are overstating BA’s credit risk with a YTW of 6.004% relative to an Intrinsic YTW of 5.054%, while CDS markets are slightly overstating risk with a CDS of 120bps relative to an Intrinsic CDS of 59bps.
  • 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.
  • Earnings Call Forensics™ of BA’s Q1 2024 (04/24/2024) earnings call highlights that management is confident they have $17 billion of liquidity today, comprised of cash on hand and credit lines.

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