BZH Valens Credit Analysis – CDS 373bps, Base Case iCDS 926bps, Negative Case iCDS 1,798bps, 2025 6.750% Bond YTW of 6.348%, iYTW of 9.608%, B3 Rating from Moody’s, HY1 (equivalent to Ba2) Rating from Valens, High Refinancing Need
June 3, 2020
- Credit markets are grossly understating credit risk with a cash bond YTW of 6.348% and a CDS of 373bps, relative to an Intrinsic YTW of 9.608% and an Intrinsic CDS of 926bps
- Fundamental analysis highlights that the combination of BZH’s cash flows and cash on hand would fall short of servicing all obligations as soon as 2022, when the firm faces a material $400mn debt headwall. Moreover, the firm’s moderate 70% recovery rate on unsecured debt and limit market capitalization may make it difficult for the firm to access credit markets at favorable rates
- Earnings Call Forensics™ analysis of the firm’s Q2 2020 earnings call (4/30) highlights that management may be concerned about their speculative building position and the impact of the pandemic on home closures and homebuilding. In addition, they may be exaggerating the strength of their first-time buyer business and their ability to improve potential homebuyers’ access to credit
