PDCE – No Traded CDS, Base Case iCDS 138bps, Negative Case iCDS 277bps, 2026 5.750% Bond YTW of 5.494%, iYTW of 3.934%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
April 1, 2022
- Credit markets are materially overstating PDCE’s credit risk, with a cash bond YTW of 5.494%, relative to an Intrinsic YTW of 3.934% and an Intrinsic CDS of 138bps. 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 compensation metrics should incentivize management to improve margins and asset utilization, leading to Uniform ROA improvement and increased cash flows available for servicing obligations. Moreover, management members have low change-in-control compensation, indicating they are unlikely to seek a sale or pursue a buyout firm, reducing event risk for creditors. Furthermore, management is specifically incentivized to reduce leverage, which bodes well for current bondholders.
- Earnings Call Forensics™ of the firm’s Q4 2021 earnings call (3/1) highlights that management is confident they are looking to retire approximately 1% of their shares outstanding per month as a part of their buyback program and that they are seeing a favorable pace of drilling, with 10 3-mile lateral completions from spud to rig release in a little over 5 days average.
