X – CDS 741bps, Base Case iCDS 380bps, Negative Case iCDS 987bps, 2025 6.875% Bond YTW of 9.599%, iYTW of 5.149%, B2 Rating from Moody’s, XO (equivalent to Baa3) Rating from Valens, Moderate Refinancing Need

• Credit markets are grossly overstating X’s credit risk with a CDS of 741bps and cash bond YTW of 9.599%, relative to an Intrinsic CDS of 380bps and Intrinsic YTW of 5.149%. Furthermore, Moody’s is materially overstating the firm’s fundamental credit risk, with their highly speculative, high-yield B2 credit rating five notches lower than Valens’ XO (Baa3) credit rating
• Fundamental analysis highlights that X’s cash flows will fall short of their operating obligations in each year going forward.However, the firm has ample capex flexibility to help service this shortfall, and boasts a robust 350% recovery rate, indicating they should be able to access credit markets to refinance, if necessary
• Incentives Dictate Behavior™ analysis highlights that management is incentivized 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
• X currently trades at a severe discount to UAFRS-based (Uniform) Assets, with a 0.3x Uniform P/B (V/A’). Given that valuations are likely being compressed by the market’s inaccurate perception of the firm’s credit risk, X could see material credit-driven equity upside if credit spreads tighten, even without fundamental improvement. Moreover, at current levels, equity downside is likely limited, as asset values begin to offer a floor to valuations at these levels