HES – CDS 117bps, Base Case iCDS 39bps, Negative Case iCDS 150bps, 2026 5.625% Bond YTW of 2.236%, iYTW of 1.226%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Moderate Refinancing Need

May 6, 2021

  • Credit markets are overstating credit risk, with a YTW of 2.236% and a CDS of 117bps relative to an Intrinsic YTW of 1.226% and Intrinsic CDS of 39bps. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with its Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) credit rating

  • Incentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers; asset efficiency, growth, and margins, which should lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Additionally, management members are material owners of HES equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation

  • Valens’ qualitative analysis of the firm’s Q1 2021 earnings call highlights that management is confident their strategy focuses on minimizing costs of supply and sustaining cash flow growth