TWI – Base Case iCDS 99bps, Negative Case 550bps, 2028 7.000% Bond YTW of 7.338%, iYTW of 5.198%, B1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

April 2, 2024

  • Credit markets are materially overstating TWI’s credit risk with a YTW of 7.338% relative to an Intrinsic YTW of 5.198% and an Intrinsic CDS of 99bps. Furthermore, Moody’s is materially overstating TWI’s fundamental credit risk with its highly speculative B1 credit rating five notches below Valens’ IG4 (Baa2) credit rating.
  • Incentives Dictate Behavior™ analysis highlights positive signals for creditors. TWI’s metrics should generally drive management to focus on margins and turns, which could lead to Uniform ROA expansion. In addition, all members of management are material owners of TWI equity relative to their annual compensation. This indicates they may be aligned with shareholders to pursue long-term value creation for the company. Furthermore, management has low change-in-control compensation relative to their annual compensation. This indicates they may not be incentivized to pursue a takeover or accept a sale of the company, decreasing event risk for creditors.
  • Earnings Call Forensics™ of the firm’s Q4 2023 (2/29/2024) earnings call highlights that management is confident Carlstar also tends to have a bigger first half of the year like the legacy Titan business and that it has some, but limited customer overlap.

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