S&P Lowers Outlook on GECC (GE) to Negative Following Trian's GE Stake Acquisition

Standard & Poor's Ratings Services said revised its outlook on General Electric Capital Corp. (NYSE: GE)(GECC) to negative from stable. At the same time, we affirmed our ratings on GECC, including our 'AA+/A-1+' issuer credit ratings.

The outlook revision follows an announcement by Trian Fund Management LP that it has acquired a $2.5 billion stake in General Electric Co. (GE). As a result, we believe that GE (GECC's parent company) could adopt a less conservative financial policy than we currently incorporate into the rating over the next two years. (We have also revised our outlook on GE to negative from stable and affirmed our 'AA+/A-1+' issuer credit ratings. See "General Electric Co. Outlook Revised To Negative On Evolving Financial Policy; Ratings Affirmed," published Oct. 7, 2015, on RatingsDirect). Under our criteria, GECC is designated as a "core" subsidiary of GE. The ratings on GECC would therefore be lowered in tandem with the ratings on GE if we ultimately take a negative rating action.

GECC has been divesting its non-core operations since its strategic announcement in April 2015 that it intended to divest financial businesses not closely aligned with GE's industrial operations (see "General Electric Capital Corp. ‘AA+/A-1+’ Ratings Affirmed Following Strategic Announcement; Outlook Stable," published April 10, 2015). GECC's non-core asset divestures are proceeding ahead of plan, in our view. We expect that GECC will maintain strong capital and liquidity throughout its planned multiyear transformation.

"The negative outlook on GECC reflects our negative outlook on parent company GE," said Standard & Poor's credit analyst Rian Pressman. "Because our ratings on GECC are at the same level as the ratings on GE, the ratings on GECC will change only if we change the ratings on GE, or if we alter our view of GECC's strategic importance to its parent. We believe the latter scenario is unlikely if management executes its strategy to merge GECC into GE by year-end."

The negative outlook on GE reflects our view that the company's financial policy is evolving 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 GECC's riskier financial assets. We expect the company to develop and clarify its long-term leverage targets within the next 12-18 months. If it appears likely that GE 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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