S&P downgrades debt-riddled GE and GE Capital | Money news

New York
CNN Enterprise
 — 

New Common Electrical boss Larry Culp simply acquired a contemporary reminder of the debt-riddled steadiness sheet he’s inheriting.

Barely 24 hours after Culp turned CEO, S&P International Rankings downgraded the credit scores of GE (GE) and GE Capital. Moody’s and Fitch warned they might do the identical.

All three scores corporations cited GE’s elevated leverage and shrinking money flows – an alarming development exacerbated by critical issues at GE’s energy division. GE mentioned on Monday that plunging revenue at GE Energy will trigger the father or mother company to overlook targets in 2018.

S&P pointed to “deep near-term challenges” at GE Energy, which has been harm by the shift in direction of renewable vitality. Extra lately, GE disclosed mechanical issues with its fuel generators.

Culp certainly has a long to-do listing as he begins work as the primary outsider CEO in GE’s historical past. However on the prime of the listing should be repairing GE’s once-sturdy steadiness sheet. GE had a excellent AAA credit score as lately as 2009. S&P lowered it on Tuesday from “A” to “BBB+”.

Over time, GE has piled on tons of debt brought on by poorly-timed offers, a huge pension deficit and misguided share buybacks.

Underscoring the size of the issue, Moody’s mentioned that GE’s “very elevated leverage” may lead it to downgrade the company’s score by a number of notches. Rankings downgrades could make it more costly for corporations to borrow money.

The great news is that S&P up to date its outlook on GE to “stable” as a result of the firm expects leverage and money circulate will improve within the coming years.

Nonetheless, GE’s debt issues could drive the company to reexamine its $4.2 billion dividend. GE cut the dividend final yr for simply the second time because the Nice Despair.

However GE’s funds have deteriorated additional. S&P listed the dividend as one of a number of levers Culp may pull to cut back debt.

In a assertion, GE mentioned it has a “sound liquidity position” that features money and working credit strains.

Repeating feedback made by Culp on Monday, GE mentioned it stays “committed to strengthening the balance sheet including deleveraging.”

Now that he’s in charge, Culp will need to determine if he needs to go ahead with former CEO John Flannery’s plans to break-up GE. Flannery’s turnaround plan included exiting varied companies, together with oil and fuel, health care and the century-old railroad division. Proceeds from the gross sales would then be used in direction of paying down debt.

However shrinking GE additionally makes the company more depending on the remaining of its portfolio – with GE Energy being the most important remaining business. Which means slumping energy revenue offers GE much less firepower to pay down debt.