CNC – Base Case CDS 166ps, Base Case iCDS 70bps, Negative Case iCDS 80bps, 2027 4.250% Bond YTW of 6.101%, iYTW of 5.071%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

August 23, 2023

  • Credit markets are overstating CNC’s credit risk with a YTW of 6.101% and a CDS of 166bps, relative to an Intrinsic YTW of 5.071% and an Intrinsic CDS of 70bps. 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 mixed signals for credit holders. As positives, most management members are material owners of CNC equity relative to their annual compensation, indicating they may be well-aligned with shareholders in terms of long-term value creation. Moreover, most management members have low change-in-control compensation relative to their average compensation, indicating they are unlikely to pursue a takeover or accept a sale of the company, decreasing event risk for creditors.

  • Earnings Call Forensics™ of the firm’s Q2 2023 earnings call (07/28/2023) highlights that management is confident 47% of Medicare Advantage lives are now associated with value-based care arrangements, that they expect to see meaningful membership improvement in 3 to 3.5-star plans in October, and that they won their first contract in Oklahoma, focusing on Sole Source Foster Care. In addition, they are confident they can create value for members, customers, and shareholders, alike, as they continue to execute their strategic framework in 2024.

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