MOH – Base Case CDS 228bps, Base Case iCDS 78bps, Negative Case iCDS 125bps, 2028 8.000% Bond YTW of 6.156%, iYTW of 4.536%, Ba3 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need
September 28, 2022
- Credit markets are materially overstating MOH’s credit risk with a YTW of 6.156% and a CDS of 228bps, relative to an Intrinsic YTW of 4.536% and an Intrinsic CDS of 78bps. Furthermore, Moody’s is grossly overstating MOH’s fundamental credit risk with its highly speculative Ba3 credit rating eight notches below Valens’ IG3+ (A1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly negative signals for credit holders. MOH’s metrics should generally drive management to focus on expanding sales and margins, which could lead to Uniform ROA expansion. However, with earnings per share-based compensation, management may be biased to allocate excess cash flows to pursue share buybacks rather than servicing debt obligations. Furthermore, management members have high change-in-control compensation, implying they are likely to accept a buyout or pursue a sale of the company, increasing event risk for creditors.
