CVI Valens Credit Report - 2018 12 18
Cash bond markets are grossly overstating credit risk with a cash bond YTW of7.974% relative to an Intrinsic YTW of 4.664%, and an Intrinsic CDS of 106bps,
Meanwhile, Moody's is overstating credit risk, with their Ba3 rating three notches
lower than Valens' XO (Baa3) rating
Fundamental analysis highlights that CVI's cash flows would fall short of operating
obligations in each year going forward. Meanwhile, the firm's cash flows and cash
on hand would fall short of servicing all obligations including debt maturities in
2022, when the firm faces a significant $500mn debt headwall. That said, while
they will need to refinance to avoid a liquidity crunch, the firm has several years
to improve operations before this first debt headwall, and their robust 200%
recovery rate should allow them to access credit markets to refinance
Earnings Call Forensicsâ„¢ of the firm's Q3 2018 earnings call (10/25) highlights that
management is confident that they run their facilities in a safe and
environmentally responsible manner, and that they have increased their
internally produced RINs by 5% of their total renewable volume application with
their B5 blending. Additionally, they are confident in their ability to increase their
total capacity of STACK, SCOOP type barrels in their refineries to 105,000 barrels a
day
CVI currently trades above recent averages relative to UAFRS-based (Uniform)
Assets, with a 1.7x Uniform P/B (V/A'). At these levels, the market is pricing in expectations for Uniform ROA to recover from 2% levels in 2017 to 13% levels in
2022, accompanied by 2% Uniform Asset shrinkage going forward
CVR Energy is a holding company. The company is engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP (CVR Refining) and CVR Partners, LP (CVR Partners). CVR Refining is an independent petroleum refiner and marketer of transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of urea ammonium nitrate and ammonia. The company's segments include: Petroleum, which includes refineries located in Coffeyville, KS and Wynnewood, OK and supporting logistics assets in the region; and Nitrogen Fertilizer, which includes nitrogen fertilizer manufacturing facilities located in Coffeyville, KS and East Dubuque, IL.
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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