F – CDS 358bps, Base Case iCDS 79bps, Negative Case iCDS 131bps, 2028 6.625% Bond YTW of 6.239%, iYTW of 3.695%, Ba2 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

May 27, 2022

  • Credit markets are grossly overstating Ford’s credit risk with a CDS of 358bps and a YTW of 6.239% relative to an Intrinsic CDS of 79bps and an Intrinsic YTW of 3.695%. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with its speculative Ba2 credit rating three notches lower than Valens’ IG4 (Baa2) credit rating.

  • Incentives Dictate Behavior™ analysis highlight mostly positive signals for credit holders. Management’s compensation metrics should focus them 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. Additionally, CEO Farley and Executive Chairman Ford’s substantial holdings relative to their annual compensation indicate they can influence other NEOs to align with shareholders for long-term value creation.

  • Earnings Call Forensics™ of the firm’s Q1 2022 earnings call (4/27) highlights that management is confident EBT results reflected strong lease residuals and credit loss performance.

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