X – CDS 409bps, Base Case iCDS 127bps, Negative Case iCDS 308bps, 2026 6.250% Bond YTW of 6.547%, iYTW of 2.117%, Caa2 Rating from Moody’s, HY1 (equivalent to Ba2) Rating from Valens, Moderate Refinancing Need

• Credit markets are grossly overstating X’s credit risk with a cash bond YTW of 6.547% and a CDS of 409bps, relative to an Intrinsic YTW of 2.117% and an Intrinsic CDS of 127bps. Meanwhile, Moody’s is materially overstating the firm’s fundamental credit risk, with its extremely speculative Caa2 credit rating six notches below Valens’ HY1 (Ba2) credit rating
• Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. X’s compensation framework incentivizes management to improve all three value drivers: sales, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing obligations going forward. Moreover, most management members are not well-compensated in a change in control, indicating they are not incentivized to pursue a sale or accept a buyout of the firm, reducing event risk. Finally, most members of management are material holders of X’s equity relative to their annual compensation, indicating that they may be well-aligned with shareholders for long-term value creation
• Earnings Call Forensics™ of the firm’s Q4 2020 earnings call (1/29) highlights that management is confident the changes in their organization will allow them to work more closely with their customers and that their 2030 global greenhouse gas emissions intensity reduction targets provide a clear path to address climate change. Moreover, they are confident they expect sustainable steel demand in the marketplace, they have no imminent plans to add additional electric arc furnaces, and that they are entering a very strong market environment in 2021