REGI – No Traded CDS, Base Case iCDS 130bps, Negative Case iCDS 191bps, 2028 5.875% Bond YTW of 5.142%, iYTW of 2.642%, B1 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need

January 6, 2022

  • Credit markets are materially overstating REGI’s credit risk with a YTW of 5.142%, relative to an Intrinsic YTW of 2.642% and an Intrinsic CDS of 130bps. Meanwhile, Moody’s is grossly overstating the firm’s fundamental credit risk, with its highly speculative B1 credit rating nine notches lower than Valens’ IG3+ (A1) credit rating.

  • Incentives Dictate Behavior™ analysis highlights mixed signals for creditors. Specifically, REGI’s compensation framework should focus management on margin expansion and revenue growth, which could lead to Uniform ROA expansion and increased cash flow generation. Additionally, members of management are material holders of REGI equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation. Furthermore, management has low change-in-control compensation relative to their average annual compensation, indicating they may not be incentivized to aREGIept a takeover or pursue a sale of the company, reducing event risk.

  • Earnings Call Forensics™ of the firm’s Q3 2021 earnings call (11/3) highlights that management is confident biodiesel demand continues to rise and is up 12% versus pre-pandemic levels and that they are regularly delivering biodiesel blends to satisfied customers across targeted industries. They are also confident there are big incentives being discussed in policy circles around sustainable aviation fuel (SAF) production which could help commercial clients satisfy pledges to reduce emissions. In addition, they are confident their ability to source entire vessels has helped them get around supply chain issues and that their unique position in the SAF market allows them to have differentiated conversations with customers around product capabilities.

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