MDR Valens Credit Analysis – Robust cash flows, sizable expected cash build, and a robust recovery rate indicate that cash bond markets and Moody’s are materially overstating credit risk

• Cash bond markets are materially overstating MDR’s credit risk with a cash bond YTW of 5.929% relative to an Intrinsic YTW of 3.809%, and an Intrinsic CDS of 190bps. Furthermore, Moody’s is materially overstating the firm’s fundamental credit risk, treating them as a high-yield B1 credit, five notches lower than Valens’ IG4 (Baa2) rating
• Incentives Dictate Behavior™ analysis highlights positive signals for debt holders. MDR’s compensation metrics should drive management to focus on all three value drivers, leading to UAFRS-based ROA expansion and increased cash flows available for servicing debt obligations
• MDR currently trades below historical averages relative to UAFRS-based (Uniform) Assets, with a 1.1x Uniform P/B. However, with valuations having rebounded materially in the past two years, the firm is no longer trading below book value, suggesting the potential for further equity upside driven by improving credit perceptions is limited