ON – Base Case iCDS 59bps, Negative Case iCDS 73bps, 2028 3.875% Bond YTW of 6. 144%, iYTW of 5.004%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

June 10, 2024

  • Cash bond markets are overstating credit risk with a YTW of 6.144% relative to an Intrinsic YTW of 5.004% and an Intrinsic CDS of 59bps. Meanwhile, Moody’s is overstating ON’s fundamental credit risk, with its Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) rating.
  • Incentives Dictate Behavior™ analysis highlights mostly negative signals for credit holders. That said, as a positive, management members are material owners of ON 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 ON’s Q1 2024 (04/29/2024) earnings call highlights that management generated an excitement marker when saying Q4 GAAP operating expenses decreased from $353 million to $328 million year over year, and they are confident they deployed 36% of their free cash flow for share repurchases and OEMs are not sacrificing their long-term view on electric vehicles due to short-term volatility

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