BA – Base Case CDS 152bps, Base Case iCDS 17bps, Negative Case iCDS 32bps, 2026 2.250% Bond YTW of 6.061%, iYTW of 4.461%, Baa2 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
November 15, 2022
- Credit markets are materially overstating BA’s credit risk with a YTW of 6.061% relative to an Intrinsic YTW of 4.461%, while CDS markets are overstating BA’s credit risk with a CDS of 152bps relative to an Intrinsic CDS of 17bps.
- Incentives Dictate Behavior™ analysis highlights favorable 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. Furthermore, most management are material owners of BA equity relative to their annual compensation, indicating they should be aligned with shareholders to pursue long-term value creation for the company. Additionally, management has no change-in-control compensation, and given the firm’s scale, it is unlikely to be a target for a buyout or acquisition, reducing event risk for creditors.
- Earnings Call Forensics™ analysis highlights that management is confident they have built a strong liquidity position.
