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DAL – Traded CDS 274bps, Base Case iCDS 92bps, Negative Case iCDS 336bps, 2026 7.375% Bond YTW of 3.380%, iYTW of 1.760%, Baa3 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

May 17, 2021

  • Credit markets are materially overstating credit risk, with a cash bond YTW of 3.380% and CDS of 274bps relative to an Intrinsic YTW of 1.760% and an Intrinsic CDS of 92bps
  • Incentives Dictate Behavior™ analysis highlights positive signals for creditors. Specifically, DAL’s compensation metrics should focus management on all three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service obligations. Moreover, management has low change-in-control compensation, indicating they are not incentivized to pursue a sale or accept a buyout of the company, which combined with DAL’s size, limits event risk for creditors. In addition, most management members are material owners of DAL equity relative to their average annual compensation, indicating they may be well-aligned with shareholders for long-term value creation
  • Earnings Call Forensics™ of the firm’s Q1 2021 earnings call (04/15) highlights that management generated an excitement marker when saying the sunset of their middle seat block will be a key driver of financial improvement. Furthermore, management is confident the recovery of international and corporate travel will prove to be a powerful cash and profitability lever