TEX – CDS 233bps, Base Case iCDS 188bps, Negative Case 404bps, 2029 5.000% Bond YTW of 6.679%, iYTW of 5.799%, Ba3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

July 3, 2023

  • Cash bond markets are overstating TEX’s credit risk with a YTW of 6.679% relative to an Intrinsic YTW of 5.799%, while CDS markets are slightly overstating credit risk with a CDS of 233bps relative to an Intrinsic CDS of 188bps. Furthermore, Moody’s is materially overstating TEX’s fundamental credit risk with its highly 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.

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