Barely 24 hours after Culp grew to become CEO, S&P International Scores downgraded the credit score scores of GE (GE) and GE Capital. Moody’s and Fitch warned they may do the identical.
All three scores corporations cited GE’s elevated leverage and shrinking money flows — an alarming pattern exacerbated by severe issues at GE’s energy division. GE stated on Monday that plunging revenue at GE Energy will trigger the dad or mum firm to overlook targets in 2018.
Through the years, GE has piled on tons of debt brought on by poorly-timed offers, a large pension deficit and misguided share buybacks.
Underscoring the size of the issue, Moody’s stated that GE’s “very elevated leverage” could lead on it to downgrade the corporate’s ranking by a number of notches. Scores downgrades could make it costlier for corporations to borrow cash.
The excellent news is that S&P up to date its outlook on GE to “secure” as a result of the agency expects leverage and money move will enhance within the coming years.
Nonetheless, GE’s debt issues might pressure the corporate to reexamine its $four.2 billion dividend. GE lower the dividend final yr for simply the second time for the reason that Nice Melancholy.
However GE’s funds have deteriorated additional. S&P listed the dividend as one among a number of levers Culp might pull to scale back debt.
In an announcement, GE stated it has a “sound liquidity place” that features money and working credit score traces.
Repeating feedback made by Culp on Monday, GE stated it stays “dedicated to strengthening the stability sheet together with deleveraging.”
Now that he is in cost, Culp might want to resolve if he desires 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 gasoline, well being 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 corporate extra depending on the remainder of its portfolio — with GE Energy being the largest remaining enterprise. Meaning slumping energy revenue provides GE much less firepower to pay down debt.