RRC – Base Case CDS 155bps, Base Case iCDS 182bps, Negative Case iCDS 254bps, 2029 8.250% Bond YTW of 6.394%, iYTW of 4.624%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
March 5, 2024
- Credit markets are materially overstating credit risk with a YTW of 6.394% relative to an Intrinsic YTW of 4.624%. Meanwhile, credit markets are 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. RRC’s compensation framework incentivizes management to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing obligations going forward. Additionally, most management members are material owners of RRC equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
