CPE – Base Case iCDS 143bps, Negative Case iCDS 208bps, 2028 8.000% Bond YTW of 8.711%, iYTW of 4.601%, B2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

September 1, 2022

  • Credit markets are grossly overstating CPE’s credit risk with a YTW of 8.711% relative to an Intrinsic YTW of 4.601% and an Intrinsic CDS of 143bps. Meanwhile, Moody’s is materially overstating CPE’s fundamental credit risk with its highly speculative B2 credit rating seven notches below Valens’ IG4+ (Baa1) credit rating.

  • Incentive Dictate Behavior™ analysis highlights mostly positive signals for both equity holders and creditors. CPE’s compensation framework should drive them to focus on asset efficiency and margin expansion, leading to potential Uniform ROA improvement and higher cash flows available to service obligations. Moreover, the Net Debt/EBITDA metric should discourage management from overleveraging the balance sheet, thus reducing credit risk. Additionally, management has low change-in-control compensation relative to their annual compensation, indicating they may not be incentivized to pursue or accept a takeover or sale of the company.

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