GM – CDS 239bps, Base Case iCDS 84bps, Negative Case iCDS 126bps, 2027 6.800% Bond YTW of 5.206%, iYTW of 3.796%, Baa3 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

May 31, 2022

  • Cash bond markets are overstating GM’s credit risk with a YTW of 5.206% relative to an Intrinsic YTW of 3.796%, while CDS markets are materially overstating credit risk with a CDS of 239bps relative to an Intrinsic CDS of 84bps. Meanwhile, 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 creditors.
  • Valens qualitative analysis of GM’s Q1 2022 (04/26/2022) earnings call highlights that management is confident they can ramp up EV launches, they are opening another battery plant in the United States, and that they launched their affordable Equinox EV. In addition, they are confident they have been successful at offsetting cost pressures and that used vehicle prices are modestly lower. Moreover, they are confident they will secure essential nickel supply agreements and will continue reducing the development time for EVs.

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