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NRG – CDS 122bps, iCDS 21bps, Negative Case iCDS 32bps, 2028 5.750% Bond YTW of 5.785%, iYTW of 4.531%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
January 9, 2025
Credit markets are overstating NRG’s credit risk with a YTW of 5.785% and a CDS of 122bps relative to an Intrinsic YTW of 4.531% and an Intrinsic CDS of 21bps. 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, all management members are material owners of NRG equity relative to their average compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
Earnings Call Forensics™ of the firm’s Q3 2024 (11/08/2024) earnings call highlights that management is confident the improvement in EBITDA shows the strength and resilience of their integrated platform and management generated an excitement market when discussing the expansion of their share of wallet with customers in Texas through their VPP partnership.
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