UAA – Traded CDS 248bps, Base Case iCDS 167bps, Negative Case iCDS 270bps, 2026 3.250% Bond YTW of 6.324%, iYTW of 5.570%, Ba2 Rating from Moody’s, IG4+ (equivalent to Baa2) Rating from Valens, Low Refinancing Need
January 27, 2023
- Credit markets are overstating credit risk with a YTW of 6.324% and a CDS of 248bps relative to an Intrinsic YTW of 5.570% and an Intrinsic CDS of 167bps . Furthermore, Moody’s is overstating UAA’s fundamental credit risk with its Ba2 credit rating four notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. Executive Chairman Plank and COO Browne are material owners of UAA equity relative to their annual compensation, indicating they could persuade other NEOs to align with shareholders to pursue long-term value creation for the company. Furthermore, most management members have low change-in-control compensation relative to their annual average compensation, indicating they are less likely to pursue a takeover or sale of the company, reducing event risk for creditors.
- Earnings Call Forensics™ of the firm’s Q2 2023 earnings call (11/3) highlights that management is confident they can compete in the athletic wear space and execute the strategic shift to see more sustainable and profitable growth. Furthermore, they are confident they can produce designs with clean aesthetics and cultural style as they develop more casual wear and can expand their current customer base. Lastly, they are confident they have invested in improving order management and point-of-sales systems at physical locations, that FX rates are becoming more favorable, and that declining air freight utilization will become a tailwind for the business in the third quarter.
