CNC – Base Case CDS 229bps, Base Case iCDS 69bps, Negative Case iCDS 189bps, 2027 4.250% Bond YTW of 4.607%, iYTW of 3.367%, 2028 2.450% Bond YTW of 4.782%, iYTW of 3.533%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
August 11, 2022
- Cash bond markets are overstating CNC’s credit risk with a YTW of 4.607% relative to an Intrinsic YTW of 3.367%, while CDS markets are materially overstating CNC’s credit risk with a CDS of 229bps relative to an Intrinsic CDS of 69bps. 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. Management’s compensation framework should drive them to focus heavily on margin expansion and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations.
- Earnings Call Forensics™ of the firm’s Q2 2022 earnings call (7/26) highlights that management is confident they completed their recent divestiture of Panther, a key milestone in their portfolio review initiative, and that the Panther divestiture will lower SG&A costs.
