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Barely 24 hours after
Culp became CEO, S&P Global Ratings downgraded the credit score scores of GE (
GE) and GE Capital. Moody’s and Fitch warned they may do the identical.
All three scores companies cited GE’s elevated leverage and shrinking money flows — an alarming development exacerbated by critical issues at GE’s energy division. GE stated on Monday that
plunging profit at GE Power will trigger the guardian firm to overlook targets in 2018.
Over the years, GE has piled on tons of debt attributable to
poorly-timed deals, a large
pension deficit and
misguided share buybacks. Underscoring the size of the issue, Moody’s stated that GE’s “very elevated leverage” may lead it to downgrade the corporate’s score by a number of notches. Ratings downgrades could make it costlier for firms to borrow cash.
The excellent news is that S&P up to date its outlook on GE to “stable” as a result of the firm expects leverage and money stream will enhance within the coming years.
Still, GE’s debt issues might drive the corporate to
reexamine its $4.2 billion dividend. GE
cut the dividend final 12 months for simply the second time because the Great Depression.
But GE’s funds have deteriorated additional. S&P listed the dividend as certainly one of a number of levers Culp may pull to scale back debt.
In a press release, GE stated it has a “sound liquidity position” that features money and working credit score traces.
Repeating feedback made by Culp on Monday, GE stated it stays “committed to strengthening the balance sheet including deleveraging.”
Now that he is in cost, Culp might want 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 numerous companies, together with oil and gasoline, health care and the century-old railroad division. Proceeds from the gross sales would then be used in direction of paying down debt.
But shrinking GE additionally makes the corporate extra depending on the remainder of its portfolio — with GE Power being the
biggest remaining business. That means slumping energy revenue provides GE
less firepower to pay down debt.
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