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VREX – No Traded CDS, Base Case iCDS 242bps, 2027 7.875% Bond YTW of 4.838%, iYTW of 3.248%, B2 (Moody’s), IG4+ (Baa1) Valens Rating, Low Refi Need

May 10, 2021

  • Credit markets are materially overstating VREX’s credit risk with a YTW of 4.838%, relative to an Intrinsic YTW of 3.248% and an Intrinsic CDS of 242bps. Meanwhile, Moody’s is materially overstating the firm’s fundamental credit risk, with its highly speculative B2 credit rating seven notches lower than Valens’ IG4+ (Baa1) credit rating
  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for VREX credit holders. Management’s compensation framework should drive them to focus on all three value drivers: asset efficiency, margin expansion, and revenue growth, which may lead to Uniform ROA improvement and higher cash flows available for servicing obligations. In addition, management members are not well-compensated in a change-in-control scenario, indicating they are unlikely to pursue a sale or accept a buyout of the firm, limiting event risk