June 17, 2019

MTW Valens Credit Analysis – No Traded CDS, Base Case iCDS 330bps, Negative Case iCDS 795bps, 2026 9.000% Bond YTW of 9.296%, iYTW of 5.216%, B2 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Nee


  • Credit markets are grossly overstating MTW’s credit risk with a cash bond YTW of 9.296%, relative to an Intrinsic CDS of 330bps and Intrinsic YTW of 5.216%. Furthermore, Moody’s is grossly overstating the firm’s fundamental credit risk, with their highly speculative, high-yield B2 credit rating 10 notches lower than Valens’ IG3+ (A1) credit rating
  • Fundamental analysis highlights that MTW’s cash flows should exceed all obligations, including debt maturities, in each year through 2025. In addition, MTW boasts a robust 130% recovery rate on unsecured debt, indicating they should be able to access credit markets to refinance, if necessary
  • Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. MTW’s compensation framework should drive management to focus on all three value drivers: sales, margins, and asset utilization, leading to Uniform ROA expansion and increased cash flows available for servicing obligations. In addition, most management members are not well compensated in a change-in-control, indicating they are not incentivized to pursue a sale or accept a buyout of the firm, reducing event risk
  • MTW currently trades below recent averages based on UAFRS-based (Uniform) Earnings, with a 12.9x Uniform P/E (V/E’). However, even at these levels, the market is pricing in expectations for Uniform ROA to expand from 4% in 2018 to 6% in 2023, accompanied by 2% Uniform Asset shrinkage going forward.
To read this Credit report in its entirety, please log into the Valens Research web app. If you don't have an account, you can sign up for the 30-day trial.