GM – Traded CDS 183bps, Base Case iCDS 90bps, Negative Case iCDS 143bps, 2027 4.200% Bond YTW of 5.768%, iYTW of 4.871%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

November 18, 2022

  • Credit markets are overstating GM’s credit risk with a YTW of 5.768% and a CDS of 183bps relative to an Intrinsic YTW of 4.871% and an Intrinsic CDS of 90bps. Meanwhile, Moody’s is also overstating the firm’s fundamental credit risk, with its Baa3 credit rating two notches lower than Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation metrics should focus them all on three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service debt obligations. In addition, while most management members are not material owners of GM equity relative to their annual compensation, CEO Barra’s significant holdings indicate she can likely persuade other NEOs to align with shareholders for long-term value creation.
  • Earnings Call Forensics™ of GM’s Q3 2022 (10/25/2022) earnings call highlights that management is confident they are committed to executing on guidance and performance laid out earlier in 2022.

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