SQ – Base Case iCDS 87bps, Negative Case iCDS 171bps, 2027 0.250% Bond YTW of 7.710%, iYTW of 5.697%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
- Credit markets are materially overstating SQ’s credit risk with a YTW of 7.710% relative to an Intrinsic YTW of 5.697% and an Intrinsic CDS of 87bps. 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. 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. Also, 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 2023 (08/03/2022) call highlights that management is confident they can achieve the growth they want to see at a minimized cost and that they are stepping up their earnings guidance by $140 million, which reflects the focus on expense discipline they delivered in the first half of the year. Lastly, they are confident their developer platform provides third-party integrations and customizable solutions and that they have long-term initiatives focused on continued growth upmarket with their vertical points of sale.