NRG – Base Case CDS 145bps, Base Case iCDS 35bps, Negative Case iCDS 46bps, 2028 5.750% Bond YTW of 5.936%, iYTW of 4.556%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

April 2, 2024

  • Credit markets are overstating NRG’s credit risk with a YTW of 5.936 % relative to an Intrinsic YTW of 4.556% and a CDS of 145bps relative to an Intrinsic CDS of 35bps. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with its Ba1 credit rating two notches lower than Valens’ IG4 (Baa2) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. NRG’s metrics should generally drive management to improve all three value drivers: margin expansion, asset utilization, and growth which could lead to Uniform ROA expansion and increased cash flows available for obligations going forward. Additionally, most management members are material owners of NRG equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
  • Earnings Call Forensics™ of NRG’s Q4 2023 earnings call (2/28/2024) highlights that management generated an excitement marker when saying commercial and industrial businesses should gravitate towards larger, reputable providers like themselves in times of market tightness.

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