Fitch downgrades GE

Eleanor Steed
By Eleanor Steed June 18, 2018 16:47

Fitch downgrades GE

Fitch Ratings has downgraded the long-term Issuer Default Ratings (IDRs) for General Electric Company (GE) and GE Capital Global Holdings, LLC (GE Capital) to A from A+. Fitch has affirmed the short-term IDRs at F1. The Rating Outlook is negative.

The downgrade of GE’s ratings incorporates Fitch’s expectation that the company’s cash flow and earnings will continue to be constrained while it addresses underperformance in the power business, evaluates its business portfolio, and carries out extensive restructuring actions to reduce its cost structure. Other considerations include the trend in GE’s portfolio actions, which Fitch believes will likely reduce the company’s strong diversification that was a key element of the ‘A+’ rating, GE’s large net pension obligations, and a meaningful reliance on commercial paper and factored receivables that contribute to elevated leverage. Also, a weaker balance sheet at GE Capital following charges in the insurance and WMC businesses increases the risk that future support may be needed from GE. The company has considerable resources to address its operating challenges, but financial results could remain weak until the company completes its restructuring.

The negative outlook incorporates risks around the pace at which GE returns to stronger FCF; pricing pressure in the renewable energy segment; loss of earnings and cash flow from asset dispositions; and the effectiveness of restructuring in the power segment in response to industry overcapacity and a shift toward renewable energy. Other concerns include contingent liabilities involving the WMC FIRREA investigation, an SEC investigation related to long-term service agreements, Alstom-related legacy liabilities, and a potential fine by the European Commission related to the acquisition of LM Wind.

Rating concerns are mitigated by solid results at the aviation and healthcare businesses that currently generate the majority of GE’s profit. Credit strengths include GE’s global presence, a broad product portfolio, strong market positions, and substantial services revenue that generates solid margins and typically is less cyclical than GE’s equipment revenue. GE’s large scale, liquidity and access to capital markets provide considerable financial flexibility to execute its operating strategies. In addition, GE has significant technological capabilities that support its long-term competitiveness and profitability.

Eleanor Steed
By Eleanor Steed June 18, 2018 16:47