CPE - Valens Credit Report - 2022 05 23
Cash bond markets are grossly overstating credit risk, with a cash bond YTW of 7.643% relative to an Intrinsic YTW of 4.423% and an Intrinsic CDS of 149bps. Meanwhile, Moody's is materially overstating the firm's fundamental credit risk, with its highly speculative B2 credit rating seven notches below Valens' IG4+(Baa1) credit rating.Incentive Dictate Behavior™ analysis highlights positive signals for both equity holders and creditors. Management's compensation framework should drive them to focus primarily on asset efficiency and margin expansion, which should lead to Uniform ROA improvement. Furthermore, management is specifically compensated on limiting leverage, which should lead to higher cash flows available for servicing existing obligations. 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.
Earnings Call Forensics™ of the firm's Q1 2022 earnings call (5/4) highlights that management is confident they are taking additional steps to further decrease operating costs.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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