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Rating Action:

Moody's affirms GE Capital's A1 rating on plans to exit North American retail finance business

15 Nov 2013

New York, November 15, 2013 -- Moody's Investors Service affirmed the ratings of General Electric Capital Corporation (GE Capital; A1/Prime-1 stable) after parent GE (Aa3/Prime-1 stable) announced plans to exit GE Capital's North American retail finance business (Retail Finance) in a multi-step transaction beginning with an IPO of 20% of the unit's shares in 2014.

RATINGS RATIONALE

In Moody's view, GE's proposed IPO and eventual exit of Retail Finance does not materially alter GE Capital's risk profile over the medium term due to expected neutral effects on the firm's capital, liquidity and overall franchise strength and diversification. However, in the short term GE Capital will provide transitional support to Retail Finance, resulting in a significant credit risk concentration and exposing GE Capital to the transaction's execution risks. During its support of the transaction, GE Capital will relinquish control of Retail Finance and will forgo the benefit of its earnings. Moody's believes that GE's ownership and support of GE Capital continues to be a source of ratings strength. GE Capital's A1 rating includes a three-notch uplift from its baseline credit assessment of baa1 in recognition of GE's support.

Retail Finance includes GE Capital's US and Canadian private-label and dual card businesses ($36 billion of receivables at September 2013), Payment Solutions sales finance business ($11 billion) and Care Credit elective health procedure finance business ($6 billion). GE expects that 2013 Retail Finance earnings will be in line with 2012 unit profits of $2.2 billion, which accounted for approximately 27% of total 2012 GE Capital segment earnings (before corporate items and eliminations).

The largest of a string of business and asset sales undertaken by GE Capital in recent years, the Retail Finance transaction is consistent with GE's objective to reduce GE Capital's scale in relation to its industrial businesses. In 2015, GE intends to split off its remaining post-IPO interest in Retail Finance through a tax-free exchange of shares with participating GE shareholders. Once concluded, GE's ending net investment (assets less noninterest-bearing liabilities less cash) in GE Capital will decline to between $300 - $350 billion from $385 billion at September 2013, while GE Capital's lower earnings will constitute about 30% of GE consolidated profits from over 50% pre-credit crisis, fulfilling two key company objectives. GE Capital's asset sales have enabled it to increase capital distributions to GE, repaying $15 billion of support it received from its parent during the financial crisis.

GE Capital will be exposed to the transaction's execution risks over the intermediate term, because it will need to provide transitional funding and administrative services to Retail Finance while managing the ownership transition. Moody's expects that the nature and magnitude of the transitional services will be similar to GE Capital's current support of the unit, but may extend beyond the 2015 ownership transfer and will result in a significant credit risk concentration. As the transaction progresses, GE Capital will also cede control of Retail Finance and will cease to benefit from its significant earnings and cash flow.

Post-transaction, GE Capital will continue to have significant asset and geographic diversification in its core commercial and lending and leasing businesses. Though the transaction will reduce GE Capital's revenue diversification and net interest margin because Retail Finance has been among GE Capital's most profitable businesses in recent years, GE Capital's aggregate measures of asset quality performance should improve, because Retail Finance has periods of higher than average delinquency and credit loss rates. Moody's anticipates that funding for GE Capital's continuing businesses will be unaltered by the transaction.

GE Capital's ratings reflects its strong positioning in multiple finance businesses globally, which have provided revenue diversity and relative earnings stability over an extended period. GE Capital's ratings incorporate an expectation of support from GE, whose industrial businesses generate strong and resilient profits and cash flow. Credit constraints include the long-term risks associated with GE Capital's continuing reliance on confidence-sensitive wholesale funding sources as well as exposure to cyclical deterioration in asset quality performance given the company's sizeable investments in certain asset classes.

Though not currently anticipated, GE Capital's ratings could be upgraded if the company: 1) achieves and maintains unquestioned liquidity strength, including a substantial reduction in reliance on the confidence sensitive wholesale funding markets; 2) demonstrates superior performance and predictability of earnings and asset quality over a sustained period of time, while maintaining strong capital levels; and 3) if GE's industrial operations continue to demonstrate significant strength and stability while maintaining a conservative capital structure and strong liquidity. Though not expected, GE Capital's ratings could be downgraded if the company's: 1) liquidity and leverage materially weaken; 2) profitability and asset quality experience sustained declines; 3) parental support from GE is viewed as having weakened; or 4) if the ratings of GE move down, due to expectations of lower performance from its industrial businesses.

Based in Stamford, Connecticut, General Electric Capital Corporation is the financial services subsidiary of General Electric Company. At September 30, 2013, GE Capital reported total assets of $521 billion.

The principal methodology used in this rating was Finance Company Global Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Ratings affirmed include the following:

General Electric Capital Corporation

Long Term Issuer Rating of A1

Senior Secured domestic currency ratings of Aa3

Senior Unsecured domestic currency ratings of A1

Senior Unsecured foreign currency ratings of A1

BACKED Senior Unsecured Bank Credit Facility domestic currency ratings of A1

Senior Unsecured Shelf domestic currency ratings of (P)A1

Senior Unsecured MTN Program domestic currency ratings of (P)A1

Senior Subordinate domestic currency ratings of A2

Subordinate domestic currency ratings of A2

Subordinate foreign currency ratings of A2

Subordinate Shelf domestic currency rating of (P)A2

Subordinate MTN Program domestic currency ratings of (P)A2

Junior Subordinate Shelf domestic currency ratings of (P)A2

Preferred Stock domestic currency ratings of A3 (hyb)

Preferred Shelf domestic currency ratings of (P)A3

Preferred Stock Non-cumulative domestic currency ratings of Baa1 (hyb)

Preferred Shelf -- PS2 domestic currency ratings of (P)Baa1

Commercial Paper ratings of P-1

Other Short Term domestic currency ratings of (P)P-1

General Electric Capital Canada Inc.

BACKED Senior Unsecured domestic currency rating of A1

BACKED Senior Unsecured MTN Program foreign currency ratings of (P)A1

BACKED Other Short Term foreign currency ratings of (P)P-1

General Electric Capital Services, Inc.(1)

BACKED Subordinate domestic currency ratings of Aa3

(1) Debts issued by General Electric Capital Services, Inc. were assumed by General Electric Capital Corporation

GE Japan Funding K.K.

BACKED Commercial Paper domestic currency ratings of P-1

GE Capital UK Funding

BACKED Senior Unsecured foreign currency ratings of A1

BACKED Senior Unsecured MTN Program foreign currency ratings of (P)A1

BACKED Subordinate MTN Program foreign currency ratings of (P)A2

BACKED Commercial Paper foreign currency ratings of P-1

BACKED Other Short Term foreign currency ratings of (P)P-1

GE Capital Australia Funding Pty. Ltd.

Senior Unsecured domestic currency ratings of A1

BACKED Senior Unsecured domestic currency ratings of A1

BACKED Senior Unsecured foreign currency ratings of A1

BACKED Senior Unsecured MTN Program domestic currency ratings of (P)A1

BACKED Senior Unsecured MTN Program foreign currency ratings of (P)A1

BACKED Subordinate MTN Program foreign currency ratings of (P)A2

BACKED Other Short Term domestic currency ratings of (P)P-1

BACKED Other Short Term foreign currency ratings of (P)P-1

GE Capital Canada Funding Company

BACKED Senior Unsecured domestic currency ratings of A1

BACKED Senior Unsecured MTN Program domestic currency ratings of (P)A1

GE Capital CFE, Inc.

BACKED Preferred Stock domestic currency ratings of Baa1 (hyb)

GE Capital European Funding

BACKED Senior Unsecured domestic currency ratings of A1

BACKED Senior Unsecured foreign currency ratings of A1

BACKED Senior Unsecured MTN Program foreign currency ratings of (P)A1

BACKED Subordinate MTN Program foreign currency ratings of (P)A2

BACKED Commercial Paper domestic currency ratings of P-1

BACKED Other Short Term foreign currency ratings of (P)P-1

GE Capital Franchise Finance Corporation

Senior Unsecured MTN Program domestic currency ratings of (P)A1

Senior Unsecured Shelf domestic currency ratings of (P)A1

Senior Subordinate Shelf domestic currency ratings of (P)A2

Subordinate Shelf domestic currency ratings of (P)A2

Preferred Shelf domestic currency ratings of (P)A3

BACKED Senior Unsecured domestic currency ratings of A1

GE Capital New Zealand Funding

BACKED Commercial Paper domestic currency ratings of P-1

GE Capital Sukuk Ltd

BACKED Senior Unsecured foreign currency ratings of A1

GE Capital Trust I

BACKED Junior Subordinate domestic currency ratings of A2 (hyb)

GE Capital Trust II

BACKED Junior Subordinate foreign currency ratings of A2 (hyb)

GE Capital Trust III

BACKED Junior Subordinate foreign currency ratings of A2 (hyb)

GE Capital Trust IV

BACKED Junior Subordinate foreign currency ratings of A2 (hyb)

GE Capital Trust V

BACKED Junior Subordinate foreign currency ratings of A2 (hyb)

Arden Realty Limited Partnership

BACKED Senior Unsecured domestic currency ratings of A1

Monogram Credit Card Bank of Georgia

BACKED Long Term Bank Deposits domestic currency ratings of A1

BACKED Short Term Bank Deposits domestic currency ratings of P-1

Security Capital Group Incorporated

BACKED Senior Unsecured domestic currency ratings of A1

SUSA Partnership, L.P.

BACKED Senior Unsecured domestic currency ratings of A1

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark L. Wasden
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms GE Capital's A1 rating on plans to exit North American retail finance business
No Related Data.
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