DVN – Base Case CDS 130bps, Base Case iCDS 48bps, Negative Case iCDS 62bps, 2027 5.250% Bond YTW of 5.832%, iYTW of 4.612%, Baa2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

July 4, 2023

  • Credit markets are overstating DVN’s credit risk with a YTW of 5.832% and a CDS of 130bps relative to an Intrinsic YTW of 4.612% and an Intrinsic CDS of 48bps. Meanwhile, Moody’s is accurately stating the firm’s fundamental credit risk, with its Baa2 credit rating one notch lower than Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights 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 the event risk for creditors.

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