The split of General Electric Company into three separate companies marks the final stages of a great deleveraging for what was once one of the most highly rated and heavily indebted American corporations.
GE is on target to reduce its debt burden by more than $75 billion over three years by the end of 2021, the company said Tuesday, thanks to operating changes designed to boost cash flow and profit margins. There are opportunities for further growth after that, the company said in an investor presentation.
The once sprawling industrial conglomerate has been reducing its debt since Chief Executive Officer Larry Culp took over in 2018. Large asset sales, including a $30 billion sale of its aircraft leasing unit earlier this year to AirCap Holdings NV, are helping GE acquire. aim.
Credit default swaps tied to GE reached their best level in more than three years in New York on Tuesday morning, meaning investors see less risk for owning the company’s debt in the coming years. Bloomberg Intelligence credit analyst Joel Levington wrote that the split “could lead to near-term bond volatility without defined capital structures for the three entities,” adding that it could be “favorable for the aerospace unit”.
GE, which held a triple-A rating from 1956 to 2009, was once ranked among the credit world’s elite issuers, when the financial crisis and recession cast doubt on the stability of the group’s financial arm, GE Capital. Over the past decade, the parent company’s ratings have fallen to the edge of the junk, with a BBB grade in S&P Global Ratings and Baa1 at Moody’s Investors Service.
The split didn’t immediately improve GE’s rating prospects, with the S&P placing the company on CreditWatch for a potential downgrade and Moody’s on Tuesday reaffirming its rating but maintaining its negative outlook. S&P said it would make a decision “when we have more details on the impact of the health care separation on GE’s financial risk profile and the potential for debt reduction.”
Levington said the breakup puts GE’s remaining aerospace unit with its more manageable balance sheet to potentially reclaim an A-level credit rating down the road. He’s looking to outperform GE’s longer-term bonds, which currently trade broader peers.
Fitch Ratings confirmed GE’s BBB rating on Tuesday, writing that “operating performance in GE’s other industrial areas will improve further as a result of the ongoing restructuring.”
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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