NRG – CDS 129bps, iCDS 32bps, Negative Case iCDS 40bps, 2028 5.750% Bond YTW of 5.897%, iYTW of 4.564%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
July 16, 2024
- Credit markets are overstating NRG’s credit risk with a YTW of 5.897% relative to an Intrinsic YTW of 4.564% and a CDS of 129bps 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. 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 the firm’s Q1 2024 earnings call (5/7/2024) highlights that management is confident novel energy management through their smart home ecosystem will be an increasingly valuable capability in a tightening market and that they saw good margin performance in their retail energy business.
