CC – Base Case CDS 355bps, Base Case iCDS 180bps, Negative Case iCDS 312bps, 2028 5.750% Bond YTW of 9.084%, iYTW of 6.454%, Ba3 Rating from Moody’s, XO (equivalent to Baa3) Rating from Valens, Low Refinancing Need
November 20, 2023
- Credit markets are grossly overstating CC’s credit risk with a YTW of 9.084% relative to an Intrinsic YTW of 6.454%, while CDS markets are materially overstating credit risk with a CDS of 355bps relative to an Intrinsic CDS of 180bps. Furthermore, Moody’s is overstating the company’s fundamental credit risk, with it speculative Ba3 credit rating three notches lower than Valens’ XO (Baa3) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for creditors. CC’s compensation framework incentivizes management to improve all three value drivers: sales, margins, and asset utilization, which should lead to Uniform ROA expansion and increased cash flows to service debt obligations. In addition, most members of management are material owners of CC equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
- Earnings Call Forensics™ of CC’s Q3 2023 (10/27/2023) call highlights that management is confident they expect their Thermal and Specialized Solutions equipment transition to be ready for 2025.
