MU – Base Case CDS 164bps, Base Case iCDS 41bps, Negative Case iCDS 65bps, 2028 5.375% Bond YTW of 6.3442%, iYTW of 5.202%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

October 31, 2023

  • Credit markets are overstating MU’s credit risk with a YTW of 6.442% relative to an Intrinsic YTW of 5.202%, and a CDS of 164bps relative to an Intrinsic CDS of 41bps. In addition, Moody’s is overstating MU’s fundamental credit risk with its Baa3 credit rating, two notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. As positives, management members are material owners of MU equity relative to their annual compensation, indicating they should be well-aligned with shareholders for long-term value creation. In addition, all management members have low change-in-control compensation relative to their annual compensation, indicating they are not likely to be incentivized to pursue a takeover or accept a sale of the company, reducing event risk for creditors.
  • Earnings Call Forensics™ of the firm’s Q4 2023 (9/27/2023) earnings call highlights that management is confident they ended below the operating expense target communicated on last September’s call.

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