SQ – Base Case iCDS 102bps, Negative Case iCDS 167bps, 2031 3.500% Bond YTW of 5.842%, iYTW of 5.308%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
June 13, 2024
- Credit markets are slightly overstating SQ’s credit risk with a YTW of 5.842% relative to an Intrinsic YTW of 5.308% and an Intrinsic CDS of 102bps. Furthermore, Moody’s is overstating SQ’s fundamental credit risk with its speculative Ba2 credit rating four notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. As positives, most management members are material owners of SQ equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company. Furthermore, most members of management have low change-in-control compensation relative to their annual compensation. This indicates that they may not be incentivized to pursue or accept a takeover or sale of the company, decreasing event risk for creditors.
- Earnings Call Forensics™ of SQ’s Q1 2024 (05/02/2024) call highlights that management is confident Afterpay’s enterprise sales team has been driving a strong pipeline of new merchant growth.
