Cash bond markets are accurately stating NRG’s credit risk with a YTW of 5.372% relative to an Intrinsic YTW of 5.326%, while CDS markets are understating credit risk with CDS of 93 bps relative to an Intrinsic CDS of 177bps. That said, 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 annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.