TEX – Base Case CDS 265bps, Base Case iCDS 152bps, Negative Case iCDS 328bps, 2029 5.000% Bond YTW of 8.283%, iYTW of 5.503%, B1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
October 10, 2022
- Credit markets are grossly overstating TEX’s credit risk with a YTW of 8.283% relative to an Intrinsic YTW of 5.503%, while CDS markets are overstating TEX’s credit risk with a CDS of 265bps relative to an Intrinsic CDS of 152bps. Furthermore, Moody’s is materially overstating TEX’s fundamental credit risk with its speculative B1 credit rating six notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. TEX’s metrics should drive management to focus on all three value drivers: margins, turns, and growth, which could lead to Uniform ROA expansion and increased cash flows available for obligations. Furthermore, most management members are material owners of TEX equity relative to their annual compensation, indicating they may be aligned with shareholders to pursue long-term value creation for the company.
- Earnings Call Forensics™ of TEX’s Q2 2022 (08/03/2022) call highlights that management is confident they have significantly de-levered over the past four years and strengthened their balance sheet.
