CNC – Base Case CDS 136bps, Base Case iCDS 72bps, Negative Case iCDS 73bps, 2028 2.450% Bond YTW of 4.783%, iYTW of 4.283%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
September 9, 2024
- Cash bond markets are slightly overstating CNC’s credit risk with a YTW of 4.783% and a CDS of 136bps relative to an Intrinsic YTW of 4.293% and an Intrinsic CDS of 73bps. Furthermore, Moody’s is overstating CNC’s fundamental credit risk with its Ba1 credit rating three notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly negative signals for credit holders. As a positive, although some management members, including CEO London, have significant change-in-control compensation relative to their average compensation, indicating they may be incentivized to pursue a takeover or accept a sale of the company, the firm’s scale may make it difficult for it to find potential suitors. This limits event risk for creditors.
- Earnings Call Forensics™ of the firm’s Q2 2024 earnings call (07/26/2024) highlights that management is confident they are conducting scenario planning for different policy themes across states and lines of business, and also that government officials’ goal across states of improving health align with its own. Moreover, management is confident rate hikes they’ve secured going into the second half of the year are a step in the right direction and that they were able to hold onto some of the rate gains achieved last year. Furthermore, management is confident their medical loss ratio guidance stands at 79% on the midpoint, that they are seeing increased clarity in the acuity of their served population, and their product strategy remains serving lower income complex seniors.
