VREX – No Traded CDS, Base Case iCDS 299bps, Negative Case iCDS 432bps, 2027 7.875% Bond YTW of 6.284%, iYTW of 3.454%, B2 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

March 2, 2021

  • Credit markets are grossly overstating VREX’s credit risk with a YTW of 6.284%, relative to an Intrinsic YTW of 3.454% and an Intrinsic CDS of 299bps. 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
  • Earnings Call Forensics™ of the firm’s Q4 2020 earnings call (11/17) highlights that management is confident streamlining manufacturing operations is incremental to their Santa Clara related cost savings