MU – Base Case CDS 70bps, Base Case iCDS 24bps, Negative Case iCDS 32bps, 2029 6.750% Bond YTW of 5.042%, iYTW of 4.397%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
November 8, 2024
- Cash bond markets are slightly overstating credit risk with a YTW of 5.042% and a CDS of 70bps relative to an Intrinsic YTW of 4.397% and Intrinsic CDS of 24bps. Meanwhile, 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 may be aligned with shareholders to pursue long-term value creation for the company. Moreover, all management members have low change-in-control compensation relative to their annual compensation. This indicates that they may not 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 2024 (09/25/2024) earnings call highlights that management is confident their HBM mix is increasing in each quarter and that sales volumes will be stronger in the second half of the fiscal year. In addition, they are confident their HBM 12-high product will make them the industry leader as it requires 20% lower power than other 8-high products in the market.
