NOTE: On February 26, 2018, the press release was corrected as follows: In the list of affected ratings, under the affirmations for General Electric Company, removed the “backed” designation from the last three bonds. Revised release follows.
New York, January 16, 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 stable. These rating actions follow the announcement by GE that
the company will incur a $7.5 billion after-tax charge
in connection with a requisite increase in statutory reserves of approximately
$15 billion related to GE Capital's run-off insurance
activities due to adverse claims behavior in the company's long-term
care policies.
RATINGS RATIONALE
Affirmation of the ratings is based on the actions that GE Capital plans
to undertake to restore capital adequacy and preserve strong liquidity
in response to the negative effects of the $7.5 billion
insurance-related charge and $15 billion statutory capital
contribution on GE Capital's leverage, liquidity and earnings.
Moody's estimates that GE Capital's pro forma leverage,
measured as tangible common equity to tangible managed assets, will
deteriorate to approximately 7.4% from 10.8%
at September 30, 2017 (including Moody's standard and non-standard
adjustments). The actions that GE Capital plans to undertake include
the suspension of dividends to GE and a further reduction of assets.
Together with the increase in insurance reserves, this will moderate
asset and refinancing risks and strengthen capital levels. Moody's
estimates that GE Capital's plan will restore leverage to the company's
September levels within two years and to within a more acceptable long-term
range of 11% to 12% within three years.
Affirmation of GE's ratings furthermore considers that the statutory
contribution to GE Capital's insurance activities does not require
any funding from GE's industrial businesses, nor does Moody's
expect that GE's industrial businesses will have to contribute any
funds to GE Capital in order to help restore GE Capital's leverage.
Moody's also views the negative effect on GE's industrial
businesses of the measures that GE Capital plans to take to be limited,
in part because GE Capital's dividends would have been very modest
relative to historical levels. Still, the suspension of GE
Capital's dividends heightens the imperative for GE to increase
free cash flows of its industrial businesses.
GE's A2 senior unsecured rating reflects the breadth and depth of
GE's position across a diverse set of end-markets that is
sustained by technological leadership. Aided by a vast installed
base and an equipment and services backlog of more than $320 billion,
cash flows will show steady improvements over time as restructuring and
portfolio shaping initiatives start to yield gains and GE heightens its
focus on cash flows from its core businesses. Notwithstanding currently
tempered free cash flows, GE's liquidity is good taking into
account that GE does not have any material debt maturities until 2020
and maintains $20 billion of borrowing availability under its committed
revolving credit facility.
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.
Moody's changed GE Capital's stand-alone credit profile
to Baa3 from Baa2 to reflect the higher risk profile of the company's
insurance activities, partially offset by GE Capital's plan
to bolster insurance reserves, reduce leverage, and shrink
assets within other business lines. However, Moody's
does not expect that these measures fully compensate for the elevated
claims experience and higher performance volatility of the insurance business,
which could result in a need for additional capital support in the future.
The stable outlook of GE's ratings is predicated on Moody's expectation
that the decline in revenues in GE's Power and Transportation segments
will be offset by growth in other segments, most notably Aviation,
resulting in modest organic revenue growth and EBITA margins of approximately
16% in 2018, calculated with GE's 62.5%
ownership of Baker Hughes on a deconsolidated basis. GE Capital's
stable ratings outlook reflects GE's strong support of GE Capital
and the benefits to financial stability of the company's strong
liquidity management.
The ratings of GE could be upgraded if the company demonstrates a material
improvement in profitability, cash flows and return on assets,
including EBITA margins that approach 20% and EBITA/Average assets
of at least 12.5%, while pursuing a more balanced
financial policy that lowers debt/EBITDA to less than 2.5 times
and increases RCF/Net debt to at least 25%.
The ratings of GE could be downgraded if the company is unable to demonstrate
meaningful improvements in free cash flow. The ratings could also
be downgraded if Moody's expects that revenues in the Power segment will
be subject to further declines beyond 2019 or that GE will be unable to
restore operating margins in this segment to at least 15%;
in the absence of continuing progress to lower debt/EBITDA towards 2.5
times; or if GE will be unable to sustain RCF/Net debt of at least
20%, including as a result of the deployment of proceeds
from planned divestitures solely for share repurchases. An 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.
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 successfully executes
its remediation plan and also meaningfully reduces its insurance exposures.
Conversely, GE Capital's standalone credit profile could be
lowered if insurance business losses increase, resulting in a material
deterioration of capital and earnings.
Affected ratings:
Affirmations:
..Issuer: General Electric Company*
*Inclusive of debt originally issued by General Electric Capital Corporation
and certain of its subisidiaries, assumed by 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 Commercial Paper,
Affirmed P-1
....Senior Secured Regular Bond/Debenture,
Affirmed A1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
....Subordinate Regular Bond/Debenture,
Affirmed A2
....Subordinate Regular Bond/Debenture,
Affirmed A3
....Senior Subordinated Regular Bond/Debenture,
Affirmed A3
..Issuer: Security Capital Group Incorporated
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A2
..Issuer: Montgomery (City of) AL, Industrial
Devel Bd
....Revenue Bonds, Affirmed A2
....Revenue Bonds, Affirmed VMIG 1
..Issuer: New York State Environmental Facilities
Corp.
....BACKED Revenue Bonds, Affirmed A2
....BACKED Revenue Bonds, Affirmed P-1
..Issuer: Upper Illinois River Valley Dev.
Authority
....BACKED Revenue Bonds, Affirmed A2
Outlook Actions:
..Issuer: General Electric Company
....Outlook, Remains Stable
..Issuer: General Electric Capital Services,
Inc.
....Outlook, Changed To No Outlook From
Stable
..Issuer: Security Capital Group Incorporated
....Outlook, Remains Stable
..Issuer: SUSA Partnership, L.P.
....Outlook, Changed To No Outlook From
Stable
Affected ratings of GE Capital and its subsidiaries:
Affirmations:
..Issuer: GE Capital Australia Funding Pty.
Ltd.
.... BACKED Subordinate MTN, Affirmed
(P)A3
.... BACKED Senior Unsecured MTN, Affirmed
(P)A2
.... BACKED Other Short Term, Affirmed
(P)P-1
.... BACKED Senior Unsecured, Affirmed
A2, stable
..Issuer: GE Capital Canada Funding Company
....BACKED Senior Unsecured MTN, Affirmed
(P)A2
.... BACKED Senior Unsecured, Affirmed
A2, stable
..Issuer: GE Capital EFS Financing Inc.
.... Long term Issuer Rating, Affirmed
A2
..Issuer: GE Capital European Funding
....BACKED Subordinate MTN, Affirmed
(P)A3
....BACKED Senior Unsecured MTN, Affirmed
(P)A2
....BACKED Other Short Term, Affirmed
(P)P-1
....BACKED Commercial Paper, Affirmed
P-1
....BACKED Senior Unsecured, Affirmed
A2, stable
..Issuer: GE Capital Global Holdings, LLC
....Long term Issuer Rating, Affirmed
A2
....Short term Issuer Rating, Affirmed
P-1
..Issuer: GE Capital International Funding Company
.... BACKED Senior Unsecured, Affirmed
A2
..Issuer: GE Capital Treasury Services (U.S.)
LLC
.... BACKED Commercial Paper, Affirmed
P-1
..Issuer: GE Capital UK Funding
....BACKED Subordinate MTN, Affirmed
(P)A3
....BACKED Senior Unsecured MTN, Affirmed
(P)A2
....BACKED Other Short Term, Affirmed
(P)P-1
....BACKED Commercial Paper, Affirmed
P-1
....BACKED Senior Unsecured, Affirmed
A2, stable
..Issuer: General Electric Capital Canada Inc.
.... BACKED Senior Unsecured MTN, Affirmed
(P)A2
.... BACKED Other Short Term, Affirmed
(P)P-1
.... BACKED Senior Unsecured, Affirmed
A2, stable
Outlook Actions:
..Issuer: GE Capital Australia Funding Pty.
Ltd.
....Outlook, Remains Stable
..Issuer: GE Capital Canada Funding Company
....Outlook, Remains Stable
..Issuer: GE Capital EFS Financing Inc.
....Outlook, Remains Stable
..Issuer: GE Capital European Funding
....Outlook, Remains Stable
..Issuer: GE Capital Global Holdings, LLC
....Outlook, Remains Stable
..Issuer: GE Capital International Funding Company
....Outlook, Remains Stable
..Issuer: GE Capital Treasury Services (U.S.)
LLC
....Outlook, Remains Stable
..Issuer: GE Capital UK Funding
....Outlook, Remains Stable
..Issuer: General Electric Capital Canada Inc.
....Outlook, Remains Stable
The methodologies used in rating General Electric Company, General
Electric Capital Corporation, Security Capital Group Incorporated,
General Electric Capital Services, Inc., 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 were Global Manufacturing Companies published in
June 2017 and Captive Finance Subsidiaries of Nonfinancial Corporations
published in December 2015.
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.
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 credit ratings is Robert
Jankowitz, MD-Corporate Finance, Corporate Finance
Group, Journalists 1 212 553 0376, 1 212 553 1653.
The person who approved General Electric Capital Corporation, Security
Capital Group Incorporated, General Electric Capital Services,
Inc., SUSA Partnership, L.P., GE
Capital Franchise Finance Corporation, 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, Journalists 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
Mark Wasden
VP - Sr Credit Officer
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ana Arsov
MD - Financial Institutions
Financial Institutions 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
