Credit markets are grossly overstating Parker Drilling Company’s (NYSE:PKD) credit risk with a CDS of 1,107bps and a cash bond YTW of 15.386%. Our fundamental analysis highlights a safer credit profile for PKD, considering the firm’s cash flows that would exceed operating obligations. Moreover, their capex flexibility should allow them to free up liquidity, and their robust recovery rate should allow them access to credit markets. These drive our much safer Intrinsic CDS of 671bps and Intrinsic YTW of 7.856%.
Moody’s is also overstating credit risk, viewing PKD as a highly speculative, high-yield B3 credit as opposed to our near cross-over HY1 (Ba2 using Moody’s rating scale) credit rating for the firm.
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