MTDR - Valens Credit Report - 2021 08 25
Credit markets are grossly overstating MTDR's credit risk with a YTW of 5.873%, relative to an Intrinsic YTW of 2.683% and an Intrinsic CDS of 190bps. Meanwhile, Moody's is materially overstating the firm's fundamental credit risk, with its B2 credit rating seven notches lower than Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management's compensation framework should drive them to focus on all three value drivers: asset efficiency, margin expansion, and revenue growth, which should lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Additionally, although most management members are not material owners of MTDR's equity relative to their annual compensation, CEO Foran's significant holdings indicate he may influence other NEOs to align their actions with shareholders' interest. Finally, 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.
Matador Resources is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with a focus on oil and natural gas shale and other unconventional plays. The company's operations are focused on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. The company also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. Also, the company conducts midstream operations, through its midstream joint venture, San Mateo Midstream, LLC together with San Mateo Midstream II, LLC.
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
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