X – Traded CDS 276bps, Base Case iCDS 319bps, Negative Case iCDS 430bps, 2029 6.875% Bond YTW of 7.108%, iYTW of 7.602%, Ba3 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need

August 29, 2023

  • Credit markets are slightly understating X’s credit risk with a YTW of 7.108% and a CDS of 276bps relative to an Intrinsic YTW of 7.602% and an Intrinsic CDS of 319bps. Meanwhile, Moody’s is materially overstating the firm’s fundamental credit risk, with its speculative Ba3 credit rating five notches below Valens’ IG4+ (Baa1) credit rating.

  • Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Management’s compensation metrics should drive them to focus on all three value drivers: asset efficiency, margin expansion, and growth, which should lead to Uniform ROA expansion and increased cash flows to service debt obligations. In addition, CEO Burritt is a material holder of X’s equity indicating he is well aligned with shareholders for long-term value creation.

  • Earnings Call Forensics™ of the firm’s Q2 2023 earnings call (7/28) highlights that management is confident in their current cash and liquidity position as well as achieving positive free cash flow in 2024. In addition, management is confident they’re executing on their transition to being less cost, capital, and carbon intensive.

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