ENDP Valens Credit Analysis – Healthy cash flows, sizable expected cash build, and significant runway to improve operations indicate that ratings agencies and credit markets are overstating credit risk

• Cash bond markets are materially overstating credit risk with a YTW of 12.451% relative to an iCDS of 640bps and an iYTW of 8.981%. Furthermore, S&P is also materially overstating ENDP’s fundamental credit risk, with their high-yield B credit rating five notches lower than Valens’ XO (BBB-) rating
• Incentives Dictate Behavior™ analysis highlights that ENDP’s management is not well compensated in a change-in-control, meaning management may not be incentivized to pursue a sale or accept a buyout of the business, limiting event risk
• ENDP currently trades at the lower end of recent averages relative to UAFRS-based (Uniform) Earnings, with a 16.1x Uniform P/E. At these valuations, the market is pricing in expectations for Uniform ROA to decline from 23% in 2017 to 12% by 2022, accompanied by 8% Uniform Asset growth going forward. Given that valuations are likely being compressed by the market’s inaccurate perception of the firm’s credit risk, ENDP could see material credit-driven equity upside if credit spreads tighten, even without fundamental improvement