MDR - Valens Credit Report - 2019 08 20
Cash bond markets are grossly overstating credit risk with a YTW of 21.100%, relative to an Intrinsic CDS of 620bps and an Intrinsic YTW of 7.610%. Meanwhile, S&P is materially overstating MDR's fundamental credit risk, with their B- rating five notches lower than Valens' XO- (BB+) rating.Incentives Dictate Behaviorâ„¢ analysis highlights mostly positive signals for debt holders. MDR's compensation metrics should drive management to focus on all three value drivers, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. Moreover, management members have low change-in-control compensation, indicating they are unlikely to accept or pursue a sale of the company, reducing event risk for creditors. However, most NEOs are not material owners of MDR equity relative to their annual compensation, indicating they may not be well-aligned with shareholders for long-term value creation.
McDermott International is a provider of engineering, procurement, construction and installation and technology solutions to the energy industry. The company designs and builds end-to-end infrastructure and technology solutions to transport and transform oil and gas into a variety of products. The company's proprietary technologies and solutions are utilized for offshore, subsea, power, liquefied natural gas and downstream energy projects around the world. The company's business is organized into five operating groups, which represent its reportable segments, consisting of: North, Central and South America; Europe, Africa, Russia and Caspian; the Middle East and North Africa; Asia Pacific; and Technology.
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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