MTOR Valens Credit Analysis – CDS 366bps, Base Case iCDS 351bps, Negative Case iCDS 561bps, 2024 6.250% Bond YTW of 8.114%, iYTW of 4.314%, Ba3 Rating from Moody’s, IG4 (equivalent to Baa2) rating from Valens, Low Refinancing Need

March 24, 2020
  • Cash bond markets are grossly overstating credit risk, with a cash bond YTW of 8.114%, relative to an Intrinsic YTW of 4.314%. Meanwhile, Moody’s is also overstating MTOR’s fundamental credit risk, with its Ba3 credit rating four notches below Valens’ IG4 (Baa2) rating
  • Earnings Call Forensics™ of the firm’s Q1 2020 earnings call (1/30) highlights that management is confident they expect to ramp-up TransPower vehicles to full production rates by 2022
  • Incentives Dictate Behavior™ analysis highlights positive signals for creditors. MTOR’s compensation structure should drive management to focus on improving all three value drivers: top-line growth, margins, and asset utilization, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. Additionally, most management members are material owners of MTOR equity relative to their average annual compensation, indicating that management may be well-aligned with shareholders for long-term value creation. Moreover, management members are not well-compensated in a change-in-control, indicating that they are unlikely to seek a sale or accept a buyout, reducing event risk for creditors
  • MTOR currently trades well below corporate averages with a 7.4x Uniform P/E (V/E’). At these levels, the market is pricing in expectations for Uniform ROA to fade to 8% through 2023, accompanied by 1% Uniform Asset shrinkage going forward