GM – CDS 138bps, Base Case iCDS 71bps, Negative Case iCDS 107bps, 2027 6.800% Bond YTW of 3.022%, iYTW of 2.272%, Baa3 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

March 7, 2022

  • Cash bond markets are overstating GM’s credit risk with a YTW of 3.022% relative to an Intrinsic YTW of 2.272%, while CDS markets are slightly overstating credit risk with a CDS of 71bps relative to an Intrinsic CDS of 138bps. Moreover, Moody’s is accurately stating the firm’s fundamental credit risk, with its Baa3 credit rating one notch lower than Valens’ IG4 (Baa2) credit rating.
  • Incentives Dictate Behavior™ analysis highlights 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 debt obligations. Moreover, management members have low change-in-control compensation relative to their average annual compensation, indicating they are unlikely to seek a sale or pursue a buyout firm, reducing event risk for creditor.
  • Valens qualitative analysis of GM’s Q4 2021 (02/01/2022) earnings call highlights that management is confident they will see another strong year of EBIT earnings in 2022. Additionally, they are confident their U.S. dealer inventories ended with a low grounded stock which is helping them achieve high sales turns.

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