New York, June 26, 2018 -- Moody's Investors Service ("Moody's") affirmed
the ratings of General Electric Company ("GE"), including
the A2 senior unsecured rating and the P-1 short term rating.
Concurrently, Moody's also affirmed the ratings of GE Capital
Global Holdings, LLC ("GE Capital") and its subsidiaries,
including the A2 long-term issuer rating of GE Capital.
The outlook of the ratings of GE, GE Capital and its subsidiaries
is negative. These rating actions follow the announcement by GE
of its plans to separate its healthcare business ("GE Healthcare"),
likely to be completed sometime in 2019.
RATINGS RATIONALE
Moody's views GE's plan to separate the GE Healthcare business
and its 62.5% ownership in Baker Hughes, a GE company
("BHGE"), as a net credit positive, and a key
driver behind the affirmation of the company's ratings. In
Moody's view, there was urgency for GE to achieve substantial
improvements in financial condition, in particular to generate the
amount of cash flow expected for an enterprise of its breadth.
As such, Moody's anticipated that the company would need material
changes to its business portfolio. The planned separation of GE
Healthcare would be the most significant move to date, and follow
closely on the planned sale of GE Transportation to Westinghouse Air Brake
Technologies Corp., and other asset divestitures.
Absent such actions, a profile consistent with the A2 rating would
be unlikely given expected market conditions and GE performance.
Once completed, these asset separations would result in a portfolio
of fewer but more focused businesses. GE would have the opportunity
to further streamline corporate expenses, while optimizing synergies
in sales and engineering. Also, as the plan contemplates
a $25 billion reduction in debt, it would result in a meaningful
step towards deleveraging GE. The lower debt would offset the reduced
revenue diversity as well as the loss of earnings and cash flow attributable
to this unit while demonstrating the company's commitment to de-risking
its capital structure. As well, the planned separation of
GE's investment in BHGE over the next two to three years can potentially
provide significant additional capital for further debt reduction or investments.
GE's strong implicit and explicit support of GE Capital, including
through debt guarantees and provision of borrowing capacity on an unconditional
and irrevocable basis, results in Moody's equalization of GE Capital's
senior unsecured rating with the senior unsecured rating of GE.
Nonetheless, the ratings outlook remains negative as continued weakness
in earnings and cash flows are expected through 2019 and into 2020.
GE's largest segment, Power, has endured a prolonged
period of demand weakness in gas turbine demand, which is expected
to continue for several years, constraining growth in margins and
cash flows in this segment for some time. As well, only modest
growth is anticipated for GE's much smaller Renewable Energy segment,
with segment operating margins expected to remain at or near 7%.
GE's Aviation segment, while highly profitable with segment
operating margins of over 24%, is not currently generating
robust cash flow due to a ramp up of investments in new engine platforms,
and is not expected to do so before 2020.
As a result, GE's free cash flow (excluding BHGE), which
was substantially negative in 2017 and Q1 2018, is not expected
to surpass $2 billion annually over the next few years despite
a significant reduction in dividends starting this year. Likewise,
EBITA margins are only expected to be in the 11-12% range
through 2019, lagging historical GE averages and below the mid-
to upper-teens levels typical among A2 rated diversified industrial
companies. As well, debt to EBITDA, currently at nearly
4 times, compares unfavorably to other industrial companies at the
same rating level.
A ratings upgrade is unlikely given the current weakness in earnings and
cash flow, and change to a stable outlook would require a return
to revenue growth and margin improvement in GE's Power segment,
and the resumption of strong free cash flow generated by both the Power
and Aviation businesses. Through 2019, clear evidence of
consolidated EBITA margins progressing towards levels sustainably above
15% with free cash flow consistently above $3 billion would
be important factors supporting a stable outlook. As well,
the commitment of the company to appropriately deploy proceeds from the
sale or separation of businesses, while maintaining conservative
financial policies will also be important towards a stable outlook.
Moody's expectations that debt to EBITDA will approximate 2.5 times
pro forma for the GE Healthcare separation and debt reduction in 2020,
with identifiable prospects for further deleveraging thereafter,
would be necessary for a stable outlook.
GE's ratings could be downgraded if Moody's anticipates GE
is not on a steady trajectory of improving cash flow, return on
asset and profits, even before the GE Healthcare unit is separated.
Specifically, lower ratings could be considered with EBITA margins
remaining in the low- to mid-teens, retained cash
flow to net debt of less than 20%, or debt to EBITDA that
is expected to remain above 2.5 times. Ratings could be
lowered if the company experiences difficulty in executing planned portfolio
actions or cost restructuring initiatives. As well, the inability
to maintain sufficient resources at GE Capital, including in the
form of assets that can be divested, to meet the planned capital
infusions into the insurance business, could also cause a ratings
downgrade. Once GE Healthcare is separated, given the loss
of diversification of business and the cash flows associated with GE Healthcare,
the ratings could be pressured down absent expectations of EBITA margins
in the mid teens level, with free cash flow well over $3
billion and improving financial leverage.
GE Capital's ratings could be upgraded if GE's ratings are upgraded and
if GE's support of GE Capital, including of future debt issuance,
remains strong. A downgrade of GE Capital's ratings could result
from a weakening of GE's support or weaker than anticipated support of
future debt issuance. GE Capital's standalone credit profile could
improve if the company strengthens its ratio of tangible common equity
to tangible managed assets towards levels comparable to those of finance
and leasing company peers and meaningfully reduces its insurance exposures.
Conversely, GE Capital's standalone credit profile could be lowered
if liquidity or the operating performance of GE Capital's aircraft
leasing business weakens materially, or if other events meaningfully
reduce the firm's capital position.
Outlook Actions:
..Issuer: General Electric Company
....Outlook, Remains Negative
..Issuer: Security Capital Group Incorporated
....Outlook, Remains Negative
..Issuer: GE Capital Australia Funding Pty.
Ltd.
....Outlook, Remains Negative
..Issuer: GE Capital Canada Funding Company
....Outlook, Remains Negative
..Issuer: GE Capital EFS Financing Inc.
....Outlook, Remains Negative
..Issuer: GE Capital European Funding
....Outlook, Remains Negative
..Issuer: GE Capital Global Holdings, LLC
....Outlook, Remains Negative
..Issuer: GE Capital International Funding Company
....Outlook, Remains Negative
..Issuer: GE Capital Treasury Services (U.S.)
LLC
....Outlook, Remains Negative
..Issuer: GE Capital UK Funding
....Outlook, Remains Negative
..Issuer: General Electric Capital Canada Inc.
....Outlook, Remains Negative
Affirmations:
..Issuer: GE Capital Franchise Finance Corporation
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2, NEG
..Issuer: General Electric Company
.... Commercial Paper, Affirmed P-1
.... Issuer Rating, Affirmed A2
....Subordinate Shelf, Affirmed (P)A3
....Senior Unsecured Shelf, Affirmed
(P)A2
....Preferred Shelf, Affirmed (P)Baa1
....Pref. Stock Non-cumulative
Preferred Stock, Affirmed Baa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
..Issuer: Montgomery (City of) AL, Industrial
Devel Bd
....Senior Unsecured Revenue Bonds,
Affirmed A2
....Short-Term Senior Unsecured Revenue
Bonds, Affirmed VMIG 1
..Issuer: New York State Environmental Facilities
Corp.
....Revenue Bonds, Affirmed A2
....Short-Term Revenue Bonds,
Affirmed P-1
....Senior Unsecured Revenue Bonds,
Affirmed A2
....Short-Term Senior Unsecured Revenue
Bonds, Affirmed P-1
..Issuer: Security Capital Group Incorporated
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2, NEG
..Issuer: SUSA Partnership, L.P.
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2, NEG
..Issuer: Upper Illinois River Valley Dev.
Authority
....Senior Unsecured Revenue Bonds,
Affirmed A2
..Issuer: General Electric Capital Corporation
....Subordinate Regular Bond/Debenture,
Affirmed A3, NEG
....Subordinate Regular Bond/Debenture,
Affirmed A2, NEG
....Senior Subordinated Regular Bond/Debenture,
Affirmed A3, NEG
....Senior Secured Regular Bond/Debenture,
Affirmed A1, NEG
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2, NEG
..Issuer: General Electric Capital Services,
Inc.
....Subordinate Regular Bond/Debenture,
Affirmed A2, NEG
..Issuer: GE Capital Australia Funding Pty.
Ltd.
....Subordinate Medium-Term Note Program,
Affirmed (P)A3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A2
....Short-Term Medium-Term Note
Program, Affirmed (P)P-1
....Senior Unsecured Regular Bond/Debentures,
Affirmed A2, NEG
..Issuer: GE Capital Canada Funding Company
....Senior Unsecured Medium-Term Note
Programs, Affirmed (P)A2
....Senior Unsecured Regular Bond/Debentures,
Affirmed A2, NEG
..Issuer: GE Capital EFS Financing Inc.
.... Issuer Rating, Affirmed A2
..Issuer: GE Capital European Funding
....Subordinate Medium-Term Note Program,
Affirmed (P)A3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A2
....Short-Term Medium-Term Note
Program, Affirmed (P)P-1
....Senior Unsecured Commercial Paper,
Affirmed P-1
....Senior Unsecured Regular Bond/Debentures,
Affirmed A2, NEG
..Issuer: GE Capital Global Holdings, LLC
.... Issuer Rating, Affirmed A2
.... Short-Term Issuer Rating,
Affirmed P-1
..Issuer: GE Capital International Funding Company
....Senior Unsecured Regular Bond/Debentures,
Affirmed A2
..Issuer: GE Capital Treasury Services (U.S.)
LLC
....Senior Unsecured Commercial Paper,
Affirmed P-1
..Issuer: GE Capital UK Funding
....Subordinate Medium-Term Note Program,
Affirmed (P)A3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A2
....Short-Term Medium-Term Note
Program, Affirmed (P)P-1
....Senior Unsecured Commercial Paper,
Affirmed P-1
....Senior Unsecured Regular Bond/Debentures,
Affirmed A2, NEG
..Issuer: General Electric Capital Canada Inc.
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A2
....Short-Term Senior Unsecured Medium-Term
Note Program, Affirmed (P)P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2, NEG
The principal methodology used in rating General Electric Capital Corporation
was Captive Finance Subsidiaries of Nonfinancial Corporations published
in December 2015. The principal methodology used in rating General
Electric Company, General Electric Capital Services, Inc.,
Security Capital Group Incorporated, SUSA Partnership, L.P.,
GE Capital Franchise Finance Corporation, Montgomery (City of) AL,
Industrial Devel Bd, New York State Environmental Facilities Corp.
and Upper Illinois River Valley Dev. Authority was Global Manufacturing
Companies published in June 2017. The principal methodology used
in rating GE Capital Global Holdings, LLC, General Electric
Capital Canada Inc., GE Capital Australia Funding Pty.
Ltd., GE Capital Canada Funding Company, GE Capital
EFS Financing Inc., GE Capital European Funding, GE
Capital International Funding Company, GE Capital Treasury Services
(U.S.) LLC and GE Capital UK Funding was Finance Companies
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
General Electric Company is a global diversified manufacturing.
Headquartered in Boston, Massachusetts, GE's industrial operations
generated approximately $116 billion in the last 12 months ended
March 2018. GE has a wholly-owned finance subsidiary,
GE Capital Global Holdings, LLC, which generated about $9
billion of revenue in the last 12 months ended March 2018.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved General Electric Company, Security Capital
Group Incorporated, GE Capital Franchise Finance Corporation,
SUSA Partnership, L.P., General Electric Capital
Corporation, General Electric Capital Services, Inc.,
Montgomery (City of) AL, Industrial Devel Bd, New York State
Environmental Facilities Corp, and Upper Illinois River Valley Dev.
Authority credit ratings is Robert Jankowitz, MD-Corporate
Finance, Corporate Finance Group, 1-212-553-0376,
1-212-553-1653. The person who approved GE
Capital Global Holdings, LLC, General Electric Capital Canada
Inc., GE Capital Australia Funding Pty. Ltd.,
GE Capital Canada Funding Company, GE Capital EFS Financing Inc.,
GE Capital European Funding, GE Capital International Funding Company,
GE Capital Treasury Services (U.S.) LLC and GE Capital UK
Funding credit ratings is Ana Arsov MD-Financial Institutions,
Financial Institutions Group, 1-212-553-0376,
1-212-553-1653.
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.
Rene Lipsch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
