SQ – Base Case iCDS 67bps, Negative Case iCDS 107bps, 2031 3.500% Bond YTW of 5.174%, iYTW of 4.329%, Ba2 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need
September 17, 2024
- Credit markets are overstating credit risk with a YTW of 5.174% relative to an Intrinsic YTW of 4.329% and an Intrinsic CDS of 67bps. Furthermore, Moody’s is materially overstating SQ’s fundamental credit risk with its speculative Ba2 credit rating seven notches below Valens’ IG3+ (A1) 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 Q2 2024 (08/01/2024) call highlights that management is confident their gross profit performance is driven by Cash App Card, Cash App Borrow, and Buy Now Pay Later.
