CPE – No Trade CDS, Base Case iCDS 119bps, Negative Case iCDS 170bps, 2028 8.000% Bond YTW of 7.106%, iYTW of 3.016%, B3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Moderate Refinancing Need

February 14, 2022

  • Cash bond markets are grossly overstating CPE’s credit risk with a cash bond YTW of 7.106%, relative to an Intrinsic YTW of 3.016% and an Intrinsic CDS of 119bps. Meanwhile, Moody’s is also grossly overstating the firm’s fundamental credit risk, with its highly speculative B3 credit rating eight notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should drive them to focus primarily on asset efficiency and margin expansion, which should lead to Uniform ROA improvement. Furthermore, management is also specifically compensated on limiting leverage, which should lead to higher cash flows available for servicing existing obligations. Moreover, most management members are not well-compensated in a change in control, indicating they are not incentivized to pursue a sale or accept a buyout of the firm, reducing event risk.

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