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FLR – Traded CDS 186bps, Base Case iCDS 156bps, Negative Case iCDS 210bps, 2028 4.250% Bond YTW of 6.436%, iYTW of 5.204%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

April 11, 2023

  • Cash bond markets are overstating FLR’s credit risk with a YTW of 6.436% relative to an Intrinsic YTW of 5.204%, while CDS markets are accurately stating FLR’s credit risk with a CDS of 186bps relative to an Intrinsic CDS of 156bps. Furthermore, Moody’s is overstating FLR’s fundamental credit risk with its Ba1 credit rating three notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. As a positive, management’s compensation metrics should focus them on all three value drivers; margin expansion, asset efficiency, and revenue growth, which should lead to higher Uniform ROA and more cash flow available to service debt obligations.
  • Earnings Call Forensics™ of the firm’s Q4 2022 earnings call (2/21) highlights that management is confident they have an opportunity to expand capacity for a pharmaceutical company in their Life Sciences business and that they are focused on growing markets outside of oil and glass, including providing solutions for government clients. In addition, they are confident their sustained realized cost savings have already surpassed their initial targets and that they can achieve their long-term 2026 adjusted EBITDA guidance. Lastly, management is confident they are seeking fair and balanced terms in their contracts, that their cash balance includes $338 million held at NuScale, and that they have no additional debt maturities until December 2024.

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