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Rating Action:

Moody's downgrades GE and GE Capital's ratings, senior unsecured to Baa1 and short-term to P-2; outlook stable

31 Oct 2018

New York, October 31, 2018 -- Moody's Investors Service ("Moody's") downgraded the long-term ratings of General Electric Company ("GE"), GE Capital Global Holdings, LLC ("GE Capital") and its subsidiaries, including the senior unsecured rating to Baa1, from A2, and downgraded the short-term rating to P-2, from P-1. The ratings outlook is stable.

This concludes the review for downgrade that was initiated on October 2, 2018.

RATINGS RATIONALE

The downgrade reflects Moody's view that the adverse impact on GE's cash flows from the deteriorating performance of the Power business will be considerable and could last some time. The weaker than expected performance at Power is not only attributable to a considerable drop in market demand and ensuing heightened competition, but also to GE's misjudgment of financial prospects and operational missteps. In addition to weaker earnings, cash flows in the Power segment are diminishing swiftly due to a decrease in progress collections following a steep decline in equipment orders. As a result, GE's free cash flow (after dividends) will likely be very weak in 2018, even with good performance at GE Aviation and GE Healthcare. Moody's anticipates that a decline in progress collections will continue to hamper cash flows in 2019, as demand for gas turbines will remain soft and GE's market share has recently come under pressure.

Nonetheless, the decision to eliminate substantially all of GE's $4.2 billion annual dividend signals GE's objective to prioritize financial flexibility and strengthening its balance sheet. The enhanced free cash flows would allow GE to maintain a higher cash balance, reduce intra-quarter borrowing needs and better contend with contingent liabilities that could materialize. Over time, the enhanced free cash flows would help ease financial constraints under which GE's businesses may be operating and, in conjunction with additional asset sales, could enable GE to repay more debt than the $9 billion announced in June concurrent with the planned spin-off of GE Healthcare.

The Baa1 senior unsecured rating balances the challenges posed by GE's Power business with the prospects for earnings and strong cash flows at GE Aviation that are underpinned by a good pace of commercial aircraft deliveries and significant OEM backlogs. GE has significant resources at its disposal and maintains a competitive presence in critical industries derived from technological leadership. The rating also incorporates Moody's expectation that GE will be able to increase EBITA margins to the mid-teens level, increase FCF/debt to high single digits and reduce leverage to less than 3 times by 2020, assuming completion of the planned spin-off of GE's Healthcare business.

GE's liquidity is adequate, but intra-quarter borrowing needs are well in excess of $10 billion and necessitate the company to draw on its revolving credit facilities that have an aggregate committed amount of approximately $40 billion. Moody's expects liquidity to improve gradually following the decision to eliminate substantially all of GE's dividend and as the company progresses with asset divestitures.

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.

The stable ratings outlook is predicated on Moody's expectation that GE will be able to contend with the challenges posed by its Power business, considerable intra-quarter borrowing needs and high debt balance, as restructuring efforts accelerate, its cash balance increases to around $15 billion and previously announced asset divestitures are completed. The availability of other assets that GE could monetize, including its 62.5% ownership interest in Baker Hughes, a GE Company, LLC, helps to mitigate the risks associated with an array of contingent liabilities and offers the possibility for additional debt repayments.

The ratings could be upgraded if growth in Power resumes and operating margins in the Power business recover to more than 10%, while consolidated EBITA margins are sustained at around 15%. FCF/debt of more than 10% and debt/EBITDA of less than 2.5 times would also be supportive of a ratings upgrade.

The ratings could be downgraded if Moody's expects that GE is unable to halt the decline in Power revenues, to restore operating margins in Power to at least the mid-single digit range, or to successfully fix the turbine blade issue of its HA-class heavy duty gas turbines. The ratings could also be downgraded if GE is unable to sustain FCF/debt at around 7%, in the absence of a steady decline in debt/EBITDA towards less than 3 times, or if GE does not utilize the proceeds from asset divestitures primarily to increase its cash balance, mitigate the risks that arise from contingent liabilities and repay debt.

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.

The following ratings were affected:

Downgrades:

..Issuer: General Electric Company (inclusive of debt originally issued by General Electric Capital Corporation and certain of its subsidiaries, assumed by General Electric Company)

....Commercial Paper, Downgraded to P-2 from P-1

....Issuer Rating, Downgraded to Baa1 from A2

....Senior Unsecured Shelf, Downgraded to (P)Baa1 from (P)A2

....Subordinate Shelf, Downgraded to (P)Baa2 from (P)A3

....Preferred Shelf, Downgraded to (P)Baa3 from (P)Baa1

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to Baa3 from Baa1

....Senior Secured Regular Bond/Debenture, Downgraded to A3 from A1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa1 from A2

....Subordinate Regular Bond/Debenture, Downgraded to Baa1 from A2

....Subordinate Regular Bond/Debenture, Downgraded to Baa2 from A3

....Senior Subordinated Regular Bond/Debenture, Downgraded to Baa2 from A3

..Issuer: Security Capital Group Incorporated

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa1 from A2, STA, from Rating Under Review

..Issuer: Montgomery (City of) AL, Industrial Devel Bd

....Senior Unsecured Revenue Bonds, Downgraded to Baa1 from A2

....Senior Unsecured Revenue Bonds, Downgraded to VMIG 2 from VMIG 1

..Issuer: New York State Environmental Facilities Corp.

....Revenue Bonds, Downgraded to Baa1 from A2

....Revenue Bonds, Downgraded to P-2 from P-1

....Senior Unsecured Revenue Bonds, Downgraded to Baa1 from A2

....Senior Unsecured Revenue Bonds, Downgraded to P-2 from P-1

..Issuer: Upper Illinois River Valley Dev. Authority

....Senior Unsecured Revenue Bonds, Downgraded to Baa1 from A2

Outlook Actions:

..Issuer: General Electric Company

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Security Capital Group Incorporated

....Outlook, Changed To Stable From Rating Under Review

Affected ratings of GE Capital and its subsidiaries:

Downgrades:

..Issuer: GE Capital Australia Funding Pty. Ltd.

....Subordinate Medium-Term Note Program, Downgraded to (P)Baa2 from (P)A3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Other Short Term Medium-Term Note Program, Downgraded to (P)P-2 from (P)P-1

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2, Stable From Rating Under Review

..Issuer: GE Capital Canada Funding Company

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2, Stable From Rating Under Review

..Issuer: GE Capital EFS Financing Inc.

....LT Issuer Rating, Downgraded to Baa1 from A2

..Issuer: GE Capital European Funding

....Subordinate Medium-Term Note Program, Downgraded to (P)Baa2 from (P)A3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Other Short Term Medium-Term Note Program, Downgraded to (P)P-2 from (P)P-1

....Commercial Paper, Downgraded to P-2 from P-1

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2, Stable From Rating Under Review

..Issuer: GE Capital Global Holdings, LLC

....LT Issuer Rating, Downgraded to Baa1 from A2

....ST Issuer Rating, Downgraded to P-2 from P-1

..Issuer: GE Capital International Funding Company

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2

..Issuer: GE Capital Treasury Services (U.S.) LLC

....Commercial Paper, Downgraded to P-2 from P-1

..Issuer: GE Capital UK Funding

....Subordinate Medium-Term Note Program, Downgraded to (P)Baa2 from (P)A3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Other Short Term Medium-Term Note Program, Downgraded to (P)P-2 from (P)P-1

....Commercial Paper, Downgraded to P-2 from P-1

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2, Stable From Rating Under Review

..Issuer: General Electric Capital Canada Inc.

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Other Short Term Medium-Term Note Program, Downgraded to (P)P-2 from (P)P-1

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2, Stable From Rating Under Review

Outlook Actions:

..Issuer: GE Capital Australia Funding Pty. Ltd.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital Canada Funding Company

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital EFS Financing Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital European Funding

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital Global Holdings, LLC

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital International Funding Company

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital Treasury Services (U.S.) LLC

....Outlook, Changed To Stable From Rating Under Review

..Issuer: GE Capital UK Funding

....Outlook, Changed To Stable From Rating Under Review

..Issuer: General Electric Capital Canada Inc.

....Outlook, Changed To Stable From Rating Under Review

The methodologies used in rating General Electric Company, General Electric Capital Corporation, GE Capital Franchise Finance Corporation, General Electric Capital Services, Inc., Security Capital Group Incorporated, SUSA Partnership, L.P., Montgomery (City of) AL, Industrial Devel Bd, New York State Environmental Facilities Corp. and Upper Illinois River Valley Dev. 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, 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, General Electric Capital Canada Inc., 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, Security Capital Group Incorporated, GE Capital Franchise Finance Corporation, General Electric Capital Corporation, General Electric Capital Services, Inc., SUSA Partnership L.P., 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 Australia Funding Pty. Ltd., GE Capital Canada Funding Company, GE Capital EFS Financing Inc., GE Capital European Funding, GE Capital Global Holdings, LLC, GE Capital International Funding Company, GE Capital Treasury Services (U.S.) LLC, GE Capital UK Funding, and General Electric Capital Canada Inc. 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

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

No Related Data.
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