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Global Credit Research - 20 Jan 2012
New York, January 20, 2012 -- Moody's Investors Service said that the ratings of General Electric
Capital Corporation (GECC; Aa2 senior unsecured, Prime-1
short-term, stable outlook) are not affected by plans to
merge GECC's immediate parent General Electric Capital Services,
Inc. (GECS) into GECC. GECS is 100% owned by General
Electric Company (GE; Aa2 senior unsecured, Prime-1
short-term, stable outlook).
The merger will simplify GECC's organizational structure and reporting,
which Moody's believes will aid in understanding the firm's
financial performance. Though the merger will modestly weaken GECC's
capital measures, Moody's believes that the company remains
committed to stronger capital management even as it plans to recommence
paying dividends to GE during 2012. GECC has materially improved
its capital position during the past three years, with the ratio
of adjusted tangible common equity to tangible managed assets increasing
to 10.5% at 31 December 2011 compared to 5.7%
at the end of 2008. The consolidated GECS ratio measured 9.2%
at 31 December 2011, reflecting the negative equity position of
GECS on a holdco-only basis. The merger is unlikely to materially
affect operating strategy and performance, with cost savings relating
mainly to reduced SEC reporting requirements for GECS.
GECS is primarily a holding company whose principal asset is the stock
of GECC, though it also operates a small number of insurance businesses
with aggregate assets (primarily investment securities) of about $30
billion. The GECS businesses will become subsidiaries of GECC upon
consummation of the merger. GECC will assume the debts of GECS,
consisting primarily of $298 million of subordinated notes due
August 2035 and about $5 billion of commercial paper. Because
the transaction is a merger of legal entities under the common control
of GE, purchase accounting will not be applied. Therefore,
the earnings and financial position that GECC reports in the future will
be the same as reported by GECS had the merger not occurred.
GECC's Aa2 long-term and Prime-1 short-term ratings
consider the firm's intrinsic credit qualities together with the strong
implicit and explicit support from GE. GECC's credit strengths
include the diversity of its businesses and revenues, its global
presence and scale, and its strong risk management oversight.
Credit challenges include the long-term risks associated with GECC's
wholesale funding model as well as increased earnings volatility resulting
from weaker asset quality performance during the global recession.
Recently lower credit costs have helped lift GECC's profitability measures
to a level consistent with its pre-crisis range. Additionally,
GECC has improved its capital and liquidity positions by deleveraging
and extending average debt maturities. However, the firm's
ongoing reliance on confidence sensitive wholesale funding is a source
of recurring risk during periods of capital market instability and negatively
affects its credit profile.
GECC reported fourth quarter 2011 net income of $1.6 billion
on revenues of $10.7 billion. Revenues were down
9% from the prior year, reflecting a decline in earning asset
levels and the absence of prior period business disposition gains,
but profits were 58% higher due to lower credit costs and operating
expenses. Ending net investment declined to $445 billion
from $477 billion at the end of 2010.
Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Financial Institutions
Financial Institutions Group
Moody's: GECC ratings not affected by merger with parent GECS
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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