MU – Base Case CDS 72bps, Base Case iCDS 28bps, Negative Case iCDS 52bps, 2028 5.375% Bond YTW of 5.423%, iYTW of 4.903%, Baa3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

May 2, 2024

  • Cash bond markets are slightly overstating credit risk with a YTW of 5.423% relative to an Intrinsic YTW of 4.903% and a CDS of 72bps relative to an Intrinsic CDS of 28bps. 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 Q2 2024 earnings call highlights that management is confident supply is tight for DRAM and NAND products, that their operating profit exceeded expectations in Q2, and that they expect revenue of $6.6 billion for Q3.

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