PDCE – No Traded CDS, Base Case iCDS 123bps, Negative Case iCDS 180bps, 2026 5.750% Bond YTW of 7.201%, iYTW of 4.481%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
- Credit markets are grossly overstating credit risk, with a cash bond YTW of 7.201%, relative to an Intrinsic YTW of 4.481% and an Intrinsic CDS of 123 bps. Meanwhile, Moody’s is overstating the firm’s fundamental credit risk, with its Ba2 credit rating four notches lower than Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. PDCE’s metrics should drive management to focus on improving margins and asset utilization, which could lead to Uniform ROA expansion and increased cash flows available for obligations. Moreover, management is incentivized to reduce leverage, which is positive for bondholders. In addition, most members of management are material holders of PDCE equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation.
- Earnings Call Forensics™ of the firm’s Q2 2022 earnings call (8/4) highlights that management generated an excitement marker when saying they have a very robust free cash flow outlook for the next several years. Moreover, they are confident they can execute more than half of their approved share buyback program this year.