DVN – Base Case CDS 115bps, Base Case iCDS 51bps, Negative Case iCDS 67bps, 2028 5.875% Bond YTW of 6.341%, iYTW of 5.211%, Baa2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
October 20, 2023
- Credit markets are overstating DVN’s credit risk with a YTW of 6.341% relative to an Intrinsic YTW of 5.211%, while CDS markets are slightly overstating credit risk with a CDS of 115bps relative to an Intrinsic CDS of 51bps.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. DVN’s metrics should drive management to focus on improving margins and asset utilization, which could lead to Uniform ROA expansion and increased cash flows available for obligations going forward. Additionally, management members are material owners of DVN equity relative to their annual compensation, indicating they are aligned with shareholders to pursue long-term value creation for the company. Moreover, most members of management have low change-in-control compensation relative to their annual compensation. This indicates they may not be sufficiently incentivized to pursue a takeover or sale of the company, decreasing event risk for creditors.
- Earnings Call Forensics™ of DVN’s Q2 2023 (8/2/2023) call highlights that management is confident they were able to bring on new Delaware wells in the quarter as a result of efficiency gains.
