S&P Affirms Ratings on GE (GE) Amid Issuance of Preferred to GE Capital Global Holdings

Standard & Poor's Ratings Services said that it has affirmed all of its ratings on General Electric Co. (NYSE: GE), including the 'AA+' corporate credit rating. The outlook is negative.

At the same time, we assigned our 'AA-' issue-level rating to the company's proposed preferred shares. The $3 billion series A 4.00% shares will become callable beginning on June 15, 2022; the $2 billion 4.05% series B shares on Dec. 15, 2022; and the $1.1 billion 4.25% series C on June 15, 2023. After the call dates, the coupon on each series will become a floating rate at spreads over the three-month LIBOR. Those spreads (2.28% for series A, 2.32% for series B, and 2.37% for series C) were set at market levels when the securities were priced.

"The affirmation reflects our view that GE is issuing the preferred shares to maintain an equity cushion at its newly formed subsidiary--GE Capital Global Holdings--and that the redemption of, and distributions related to, the preferred shares will be effectively funded by shares with equivalent terms to be issued by GE Capital Global Holdings to GE," said Standard & Poor's credit analyst Sarah Wyeth. "The affirmation is also based on our expectation that GE will continue to adhere to a conservative financial policy." We believe that if GE redeems the shares, it will replace them with new equity of its own or with equity issued by GE Capital Global Holdings directly to third-party investors. The preferred stock will be given 50% equity treatment when calculating financial ratios, given its deferrable payments and subordination to other debt instruments. While the shares add incremental leverage to the company's credit metrics, we continue to view GE's financial risk profile as "modest" and its financial policy as conservative. Our overall analytical interpretation of the hybrids is informed by our belief that the company intends to maintain this capital in its capital structure, either at the parent or at GE Capital Global Holdings, in order to maintain an equity cushion at the financial subsidiary.

The negative outlook reflects our view that the company's financial policy could potentially evolve as it shifts its strategic focus to its industrial businesses from its financial arm. The company could adopt a less conservative financial policy after it successfully reduces its exposure to GE Capital Global Holdings' riskier financial assets. We expect that the company will develop and clarify its long-term leverage targets within the next 12-18 months. If it appears likely that the company will pursue increased share buybacks or acquisitions to an extent that significantly increases its leverage, we could lower our ratings.

We could also lower our ratings on GE if the company narrows its focus in its industrial end markets, significantly reducing its scope and diversity.

We could revise our outlook on GE to stable if the company articulates a financial policy that will likely cause its leverage metrics to remain within our expected range for a modest financial risk profile.

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