TRIP – No Traded CDS, Base Case iCDS 125bps, Negative Case iCDS 159bps, 2025 7.000% Bond YTW of 6.175%, iYTW of 3.365%, Ba3 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need
March 28, 2022
- Credit markets are grossly overstating credit risk with a YTW of 6.175% relative to an Intrinsic YTW of 3.365% and an Intrinsic CDS of 125bps. In addition, Moody’s is overstating TRIP’s fundamental credit risk with its speculative Ba3 credit rating four notches below Valens’ IG4 (Baa2) credit rating.
- Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. Management’s compensation framework should drive them to focus heavily on top-line growth and margin expansion over time, which could lead to Uniform ROA expansion and higher cash flows available for servicing debt. Moreover, management members have low change-in-control compensation indicating they are not incentivized to pursue a buyout. Lastly, although most management members do not hold material amounts of TRIP equity relative to their annual compensation, CEO Kaufer’s significant ownership indicates he could convince other NEOS to align with shareholders for long-term value creation.