F - Valens Credit Report - 2021 04 23
CDS markets are materially overstating Ford%u2019s credit risk with a CDS of 227bps, relative to an Intrinsic CDS of 62bps. Meanwhile, cash bond markets are overstating the firm%u2019s credit risk with a YTW of 2.994%, relative to an Intrinsic YTW of 1.494%. Furthermore, Moody%u2019s is overstating the firm%u2019s fundamental credit risk, with its speculative Ba2 credit rating three notches lower than Valens%u2019 IG4 (Baa2) credit ratingIncentives Dictate Behavior%u2122 analysis highlights mostly positive signals for credit holders. Management%u2019s compensation metrics should focus them on all three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service obligations. Additionally, management members have relatively low change-in-control compensation relative to their average annual compensation, indicating they may not be incentivized to seek an LBO or sale of the company, reducing event risk for creditors
Ford Motor designs, manufactures, markets, and services a line of Ford cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln vehicles, as well as provides financial services through its subsidiary, Ford Motor Credit Company LLC. The company is engaged in electrification; mobility solutions, including self-driving services; and connected vehicle services. The company has three operating segments: Automotive, which includes the sale of Ford and Lincoln vehicles, service parts, and accessories; Mobility, which includes its autonomous vehicles and its investment in mobility through Ford Smart Mobility LLC; and Ford Credit, which includes vehicle-related financing and leasing activities.
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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