FCX – Base Case CDS 153bps, Base Case iCDS 72bps, Negative Case iCDS 105bps, 2028 4.125% Bond YTW of 6.287%, iYTW of 5.257%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
- Credit markets are overstating credit risk with a YTW of 6.287% relative to an Intrinsic YTW of 5.257% and a CDS of 153bps relative to an Intrinsic CDS of 72bps. Furthermore, Moody’s is overstating FCX’s fundamental credit risk with its Baa3 credit rating two notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights positive signals for debt holders. Management’s compensation metrics should lead them to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to improved cash flows available for servicing obligations going forward. Meanwhile, most management members are material owners of FCX equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company. Lastly, management has low change-in-control compensation relative to their average annual compensation, indicating they may not be sufficiently incentivized to pursue a takeover or sale of the company, decreasing event risk for creditors.