BLDR Valens Credit Analysis – No Traded CDS, Base Case iCDS 316bps, Negative Case iCDS 555bps, 2027 6.750% Bond YTW of 6.466%, iYTW of 3.736%, B1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
April 27, 2020
- Credit markets are grossly overstating BLDR’s credit risk with a cash bond YTW of 6.466%, relative to an Intrinsic YTW of 3.736% and an Intrinsic CDS of 316bps. Furthermore, Moody’s is materially overstating the firm’s fundamental credit risk, with its highly speculative B1 credit rating five notches lower than Valens’ IG4 (Baa2) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. BLDR’s management compensation structure should drive them to focus on growth, margins, and asset efficiency, which should lead to Uniform ROA expansion and higher cash flows available for servicing obligations. Also, management is not well-compensated in a change-in-control, indicating they are unlikely to pursue a sale or accept a buyout of the firm, decreasing event risk for creditors