NRG – CDS 114bps, iCDS 32bps, Negative Case iCDS 40bps, 2028 5.750% Bond YTW of 5.756%, iYTW of 4.185%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
October 10, 2024
- Credit markets are materially overstating NRG’s credit risk with a YTW of 5.756% relative to an Intrinsic YTW of 4.185%, while CDS markets are overstating credit risk with a CDS of 114bps relative to an Intrinsic CDS of 32bps. 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. Management’s compensation metrics should generally drive them 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.
