KSS – Base Case CDS 493bps, Base Case iCDS 279bps, Negative Case iCDS 322bps, 2029 7.250% Bond YTW of 7.163%, iYTW of 6.895%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
November 5, 2024
- Cash bond markets are now accurately stating KSS’ credit risk with a YTW of 7.163% relative to an Intrinsic YTW of 6.895%, while CDS markets are materially overstating risk with a CDS of 493bps relative to Intrinsic CDS of 279bps. Furthermore, Moody’s is overstating the company’s fundamental credit risk, with its speculative Ba2 credit rating four notches lower than Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers: margin expansion, asset efficiency, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. In addition, management has low change-in-control compensation relative to their average annual compensation indicating they may not be incentivized to pursue a takeover or accept a sale of the company, decreasing event risk for creditors.
