Details Of S&P's Rating Downgrade on GE (GE)

Just before the open, the much-anticipated triple-A rating cut on GE (NYSE: GE) was announced at S&P. Within minutes of the announcement, GE issued a response, saying, "the review and rating reaffirm the relative strength of the company." Shares of GE are up fractionally after the announcement. Below are some details of the rating change:

Standard & Poor's lowered its long-term ratings on General Electric Co. and units, including General Electric Capital Corp. (GECC), by one notch to 'AA+' from 'AAA'. We affirmed the 'A-1+' short-term credit ratings. The outlook is stable.

S&P said the main factor in the downgrade was the stand-alone credit profile of financial services unit GECC. Credit analyst Robert Schulz said, "We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe.
This will result, in our opinion, in rising credit losses across key segments of GECC's finance portfolio. Still, we believe that GE's industrial-based cash generation capabilities remain fundamentally strong--even in the face of enormous global economic headwinds--and that it will generate growing cash balances from current levels over the next two years. We do not anticipate that GE will benefit from any meaningful earnings or cash flow from GECC through 2010."

S&P believes that GE's industrial businesses will generate about $2 billion in discretionary cash flow (after dividends) in 2009 and a significantly greater amount in 2010, aided by the 68% reduction in the common dividend.

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