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TEX – Base Case CDS 271bps, Base Case iCDS 188bps, Negative Case iCDS 414bps, 2029 5.000% Bond YTW of 6.554%, iYTW of 5.404%, Ba3 Rating from S&P, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

April 14, 2023

  • Credit markets are overstating credit risk with a YTW of 6.554% and a CDS of 271bps relative to an Intrinsic YTW of 5.404% and an Intrinsic CDS of 188bps. Furthermore, Moody’s is materially overstating TEX’s fundamental credit risk with its speculative Ba3 credit rating five notches below Valens’ IG4+ (Baa1) credit rating.
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. TEX’s compensation 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 are material owners of TEX equity relative to their annual compensation, indicating they are aligned with shareholders to pursue long-term value creation for the company.
  • Earnings Call Forensics™ of TEX’s Q4 2022 (2/10/2023) call highlights that management is confident the replenishment of dealer inventory due to the conversion of customers from rent to ownership is a source of strength.

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