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MU – No Traded CDS, Base Case iCDS 26bps, Negative Case iCDS 100bps, 2027 4.185% Bond YTW of 1.951%, iYTW of 1.151%, B1 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need

May 3, 2021

  • Credit markets are overstating MU’s credit risk with a YTW of 1.951%, relative to an Intrinsic YTW of 1.151% and an Intrinsic CDS of 26bps. Meanwhile, Moody’s is materially overstating the firm’s fundamental credit risk, with its Baa3 credit rating five notches lower than Valens’ IG3+ (A1) credit rating

  • Incentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management’s compensation framework should drive them to focus on all three value drivers: asset efficiency, margin expansion, and revenue growth, which should lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Additionally, management members are material owners of MU equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation

  • Earnings Call Forensics™ of the firm’s Q2 2021 (03/31) earnings call highlights that management is confident they delivered a second consecutive record for quarterly revenue as the auto manufacturing industry recovers across the globe