RIG - Valens Credit Report - 2019 12 11
CDS markets are grossly overstating RIG's credit risk with a CDS of 828bps relative to an Intrinsic CDS of 212bps, while cash bond markets are materially overstating credit risk with a YTW of 5.468% relative to an Intrinsic YTW of 3.788%. Additionally, Moody's is materially overstating RIG's fundamental credit risk, with their highly speculative B3 credit rating six notches lower than Valens' XO (Baa3) rating.Incentives Dictate Behaviorâ„¢ analysis highlights mostly positive signals for credit holders. Management's compensation framework focuses them on growing revenue and asset utilization rates, which should lead to Uniform ROA expansion and higher cash flows available for servicing obligations. Furthermore, management is not well compensated in a change-in-control event, indicating they are unlikely to accept a takeover or pursue a buyout, limiting event risk for credit holders.
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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