Moody's Says GE's (GE) Plan to Take on $20B in Debt Could Pressure Ratings
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General Electric Company's (NYSE: GE) plan to take on $20 billion of debt adds to the uncertainty surrounding its ability to mitigate recent pressure on credit metrics, despite the company's operational strengths, according to a new report by Moody's Investors Service.
"Although GE's scale, resilient earnings and diversity of end markets and customers have generally offset the recent erosion of its key credit metrics, the prospect of $20 billion of incremental debt is the latest sign that the company is consciously shifting toward a credit profile that is more fully levered and typical of other large industrial peers, with a concomitant higher tolerance for financial risk," noted Russell Solomon, Moody's Senior Vice President and lead analyst for the company. "This is compounded by the ballooning debt-like pension deficit GE is already facing, further elevating leverage."
In the report, Moody's analyzed the potential impact of several deployment scenarios for additional debt on two key metrics used to assess a company's credit risk: pro forma debt/EBITDA and pro forma EBITA/interest. Moody's found that leverage would likely rise by about one-half to one full turn of EBITDA under the various contemplated scenarios, which would be additive to another 0.3-0.4 turns of higher imputed debt in conjunction with the company's pension funding shortfall based on lower interest rates and the rating agency's estimated liability if marked-to-market today.
In April 2015, Moody's downgraded GE's senior unsecured debt rating to A1 due to a perceived build-up of incremental risk in its now more industrial-focused, less diverse collection of businesses; a waning resiliency of cash flows and earnings relative to peers; and a shift to more aggressive shareholder return policies.
Moody's subscribers can access the report, "General Electric Company: Key Metrics Align With Many Lower Rated Industrial Peers -- An Additional $20B Of Debt Could Pressure Ratings," on Moody's.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1035736
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