UHS Valens Credit Analysis – CDS 68bps, Base Case iCDS 120bps, Negative Case iCDS 284bps, 2026 5.000% Cash Bond YTW of 4.115%, iYTW of 1.505%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

September 10, 2020

  • Cash bond markets are grossly overstating credit risk with a cash bond YTW of 4.115% relative to an Intrinsic YTW of 1.505%, while CDS markets are slightly understating credit risk with a CDS of 68bps relative to an Intrinsic CDS of 120bps. Meanwhile, Moody’s is overstating UHS’s fundamental credit risk, with its Ba1 rating three notches lower than Valens’ IG4+ (Baa1) rating
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Although a lack of leverage metrics may drive management to take on excess debt, UHS’s compensation framework incentivizes them to focus on all three value drivers: growth, margins, and asset turnover, which should lead to Uniform ROA expansion.