SITC – Base Case CDS 144bps, Base Case iCDS 307bps, Negative Case iCDS 344bps, 2027 4.700% Bond YTW of 4.669%, iYTW of 6.079%, Baa3 Rating from Moody’s, HY2 (equivalent to B2) Rating from Valens, High Refinancing Need
May 10, 2022
- Cash bond markets are understating credit risk, with a cash bond YTW of 4.669%, relative to an Intrinsic YTW of 6.079%, while CDS markets are materially understating credit risk, with a CDS of 144bps relative to an Intrinsic CDS of 307bps. Meanwhile, Moody’s is also materially understating the firm’s fundamental credit risk, with its Baa3 credit rating five notches higher than Valens’ HY2 (B2) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. That said, management members’ high change-in-control compensation indicate they may be willing to accept a buyout or pursue a sale of the company, increasing event risk for creditors.
- Earnings Call Forensics™ of the firm’s Q1 2022 earnings call highlights that management may lack confidence in their ability to drive sustainable growth, improve occupancy rates, and sustain increased property value guidance due to strong retention rates. Moreover, management may have concerns about the sustainability of retailer demand, particularly from high income customers. Finally, they may have concerns about the repercussions of selling the SAU portfolio, their leverage position, and their preferred debt obligations maturing in June.
