FLR – Traded CDS 298bps, Base Case iCDS 188bps, Negative Case iCDS 296bps, 2028 4.250% Bond YTW of 6.596%, iYTW of 4.931%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

August 1, 2022

  • Cash bond markets are materially overstating FLR’s credit risk with a YTW of 6.596% relative to an Intrinsic YTW of 4.931%, while CDS markets are overstating FLR’s credit risk with a CDS of 298bps relative to an Intrinsic CDS of 188bps. 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. Management’s compensation metrics should focus management 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 Q1 2022 earnings call (5/6) highlights that management is confident they can improve their book to burn ratio above 1.0, that they are entering contracts that protect their business, and that their margins were extremely strong.

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