HCA – CDS 115bps, Base Case iCDS 72bps, Negative Case iCDS 100bps, 2026 5.875% Bond YTW of 2.332%, iYTW of 1.732%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

March 9, 2021

  • CDS markets are slightly overstating credit risk with a CDS of 115bps relative to an Intrinsic CDS of 72bps, while cash bond markets are overstating credit risk with a cash bond YTW of 2.332% relative to an Intrinsic YTW of 1.452%. 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, 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 Q4 2020 earnings call (02/07) highlights that management is confident their technology initiatives will yield profitability over time, their capital growth projects achieve a high percentage of their expected returns, and that lowering their leverage ratio is a focus of their current capital budgeting