HCA – CDS 112bps, Base Case iCDS 65bps, Negative Case iCDS 88bps, 2026 5.875% Bond YTW of 2.411%, iYTW of 1.481%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

May 20, 2021

  • CDS markets are slightly overstating credit risk with a CDS of 112bps relative to an Intrinsic CDS of 65bps, while cash bond markets are overstating credit risk with a cash bond YTW of 2.411% relative to an Intrinsic YTW of 1.481%. Meanwhile, Moody’s is overstating HCA’s fundamental credit risk with its Ba1 rating two notches lower than Valens’ IG4 (Baa2) rating
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. HCA’s compensation framework should drive management to focus on top-line growth and margin expansion. Moreover, management members are significant holders of HCA equity relative to their annual compensation, indicating they are likely well-aligned with shareholders for long-term value creation. In addition, management members are not well-compensated in a change-in-control, suggesting they may not be incentivized to accept a takeover or pursue a buyout of the firm, limiting event risk
  • Earnings Call Forensics™ of the firm’s Q1 2021 earnings call (04/22) highlights that management is confident acuity mix, payer mix, and revenue per adjusted admission performance helped their margins significantly. They are also confident they made a large commitment to inpatient rehabilitation facilities in Florida and that capex spending will recover as they repopulate the pipeline with approvals