FCX – Base Case CDS 175bps, Base Case iCDS 70bps, Negative Case iCDS 108bps, 2027 5.000% Bond YTW of 6.182%, iYTW of 5.102%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
November 11, 2022
- Credit markets are overstating FCX’s credit risk with a YTW of 6.182% and a CDS of 175bps relative to an Intrinsic YTW of 5.102% and an Intrinsic CDS of 70bps. 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 mostly positive signals for debt and equity holders. FCX’s compensation framework incentivizes management to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing obligations going forward. Furthermore, most members of management 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.
- Earnings Call Forensics™ analysis highlights that management is confident they are being conservative in their expectations for the Bagdad project, and that they are focusing on factors that they can control without being distracting by things they cannot.
