NRG – CDS 133bps, iCDS 30bps, Negative Case iCDS 49bps, 2028 5.750% Bond YTW of 5.849%, iYTW of 4.322%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
March 26, 2025
- Credit markets are materially overstating NRG’s credit risk with a YTW of 5.849% relative to an Intrinsic YTW of 4.322%, while CDS markets are overstating credit risk with CDS of 133bps relative to an Intrinsic CDS of 30bps. 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 mixed 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. In addition, many members of management, including CEO Coben and CFO Chung, have low change-in-control compensation relative to their annual compensation, indicating they are not incentivized to pursue a takeover or sale of the company, decreasing event risk for creditors.
- Earnings Call Forensics™ of the firm’s Q4 2024 (02/26/2025) earnings call highlights that management generated excitement markers when talking about the positioning of their core business and the availability of super cycle opportunities ahead, as well as the tailwinds for Texas to capitalize on growing power demand.
