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Rating Action:

Moody's downgrades GE rating to Aa3, GE Capital to A1

Global Credit Research - 03 Apr 2012

New York, April 03, 2012 -- Moody's Investors Service today downgraded the senior unsecured debt rating of General Electric Company (GE) to Aa3 from Aa2 and the senior unsecured rating of its wholly-owned finance subsidiary, General Electric Capital Corporation (GECC), to A1 from Aa2. Moody's affirmed the Prime-1 ratings of both companies. The rating outlook for GE and GECC is stable. This concludes the review initiated on 19 March 2012.

RATINGS RATIONALE

The downgrades result from the implementation of Moody's revised global rating methodology for finance companies, and reflect in particular the impact of GECC's higher risk profile on GE. Moody's believes the risk profiles of market-funded financial institutions, including GECC, are higher than was previously reflected in their ratings. While GECC has improved its liquidity and capital levels since the onset of the credit crisis, Moody's believes that, notwithstanding these positive steps, there remain material risks associated with the firm's funding model. Moody's therefore revised its view of GECC's standalone credit profile to Baa1 from A2. The rating implications of these structural and enduring risks are explained in Moody's revised finance company rating methodology, which was released on 19 March 2012.

With a senior debt rating of A1, GECC is now rated one-notch lower than GE but three notches higher than its Baa1 standalone profile. This reflects Moody's view that support from GE is highly likely but not certain in the absence of a guarantee. To lift GECC's rating further from its standalone credit profile and equalize it with GE's rating would require a higher degree of support certainty.

RATINGS RATIONALE -- GE

The Aa3 rating for GE broadly reflects the strong competitive positions of its industrial businesses across a broad range of products and services, and expectations that they should continue to demonstrate solid operating performance over the near- to intermediate-term, generating strong levels of profitability and free cash flow. "We believe that GE's industrial operations continue to have many Aaa-like credit characteristics," noted Senior Vice President Russell Solomon, Moody's lead analyst for GE. "The downgrade reflects Moody's view of the heightened risk profile inherent to finance companies like GECC, which has strategic importance to GE, rather than any deemed incremental risk related to GE's industrial business lines" Solomon added.

Moody's believes GE's performance will continue to improve, particularly in light of the recent reduction of exposure to short-cycle businesses such as advertising-based local television through the sale of NBCU, the proceeds of which were heavily redeployed into additional long-cycle, energy-related acquisitions in 2011 and which should offer better long-term prospects. Despite ongoing caution in the economic environment and tight credit market conditions, Moody's expects GE's long-cycle businesses (Energy, Aviation, Transportation, and Healthcare) to continue to outperform industry peers.

GE's record $200 billion infrastructure equipment and services backlog, with particularly robust orders in the energy and aviation areas, provides important visibility into future revenue and should support the long-term stability of cash flow. The company's strong recurring revenue streams from high-margin aftermarket services support Moody's expectation of operating performance stability, even in challenging environments. Offsetting these strengths, however, and the critical driver of the revised Aa3 rating, is Moody's expectation that GECC will continue to be a source of somewhat higher long-term risk.

RATINGS RATIONALE -- GECC

GECC's A1 rating reflects the firm's stand-alone credit profile, equivalent to a Baa1 rating, as well as the uplift from Moody's expectation of GE's strong parental support. Key aspects of GECC's stand-alone strength are its global presence and scale in multiple commercial and consumer finance businesses, which have provided revenue diversity and relative earnings stability over an extended period. Moody's continues to view GECC as one of the strongest finance companies in the world. However, GECC's large size also requires that it rely on the capital markets to fund its portfolios. During the credit crisis, these markets were unreliable for even the strongest issuers.

During the downturn GECC took steps to address refinancing risk by reducing commercial paper borrowing to less than half pre-crisis levels, accumulating a significant cash cushion to pre-fund debt maturities, diversifying funding sources to include deposits and secured financing, and extending the average maturity of debt outstanding. GECC has also reduced earning assets by more than 20% since 2008 by divesting or running off higher risk and underperforming portfolios, while also increasing shareholders' equity by 37%.

"These measures better position GECC to withstand future disruptions in funding access," said Moody's senior analyst Mark Wasden. "Nevertheless, we believe that GECC's revised strategies do not fully mitigate risks to its credit profile associated with its high reliance on confidence-sensitive funding."

Contributing to GECC's stand-alone strength is its ownership by GE, which provides GECC with operating and funding opportunities that Moody's believes are intrinsic to its credit profile. Different than parental support, these opportunities include GECC's ability to access GE's customer base, tap the expertise of GE's operating divisions, and enjoy enhanced access to capital sources based on GE's reputation and operating strengths. Additionally, like major bank holding companies GECC is regulated by the Federal Reserve, which instills a level of sophistication and oversight in the firm's risk management disciplines that exceeds that of most other finance companies.

Moody's believes that GECC's strong competitive positioning and the backing of its parent provide the basis for the firm to continue to improve asset quality and profitability metrics to historical levels over the next two years. Lower credit costs drove profitability improvements in 2011, aided by stronger margins in newer origination vintages. However, heightened competition is beginning to pressure market asset yields and opportunities for further reducing credit costs are diminishing. Though the pace of further profitability improvements may be more measured, GECC's strategic portfolio decisions to reduce lower margin businesses while reinvesting in more profitable businesses should lead to sustainable improvements in overall profitability in the future.

GECC's three-notch rating uplift relative to its Baa1 stand-alone profile reflects Moody's expectation that GE will continue to support GECC. GE's support is exemplified by a public income maintenance agreement and capital injections in 2008 and 2009 that totaled $14.5 billion. Because of the income maintenance agreement, Moody's views the capital generating capacity of GE as strong contingent support for GECC's capital base. Though Moody's continues to view GE's support of GECC as highly likely, in the absence of a guarantee it is less than certain. To lift GECC's rating further from its standalone credit profile and equalize it with GE's rating would require a higher degree of support certainty.

Ratings Outlook

The stable ratings outlook reflects Moody's expectation that GE's industrial operations will generate strong levels of profitability and free cash flow during the currently slow growth economic cycle. It also encompasses the expectation that GECC will continue to improve its liquidity profile. Over the longer term, the outlook also reflects Moody's expectation that GECC will generate superior earnings and asset quality measures while maintaining strengthened liquidity and capital positions. Moreover, the stable outlook incorporates the expectation of GE's ongoing strong support for GECC.

What Could Change the Ratings - Down

1. A weakening of GECC's liquidity position or a material increase in its leverage as portfolio growth resumes

2. A decline in GECC's profitability or reversal of asset quality improvements for a sustained period of time

3. For GECC, a view that GE's support of GECC could weaken

4. Sustained erosion in the competitive strength and cash generation of GE's industrial operations, particularly with respect to the services revenue streams

5. Evidence of more aggressive shareholder return initiatives that exceed free cash flow generation (including dividends upstreamed from GECC)

6. Resumption of the aggressive pace of acquisitions seen in early 2011 that results in further leveraging of GE's industrial balance sheet

7. GE financial metrics that could suggest downward rating potential include debt/EBITDA above 2.5x, EBIT/interest sustained below 5x and retained cash flow/net debt falling below 15%

What Could Change the Ratings - Up

Moody's does not expect an upgrade over the near- to intermediate-term, particularly while GE remains exposed to the potential risks associated with GECC. Over the longer term, however, upwards rating momentum could develop if:

1. GECC demonstrates unquestioned liquidity, including a substantial reduction in its reliance on the confidence-sensitive wholesale funding market, and

2. GECC's earnings and asset quality reflect superior performance and predictability while the firm maintains strong capital levels, and

3. GE's industrial operations continue to demonstrate significant strength and stability while a conservative capital structure and strong liquidity are maintained.

Headquartered in Fairfield, Connecticut, General Electric Company's industrial operations generate about $100 billion of annual revenue as a global diversified conglomerate with heavy manufacturing operations in five broad reporting segments: Energy Infrastructure, Aviation, Transportation, Healthcare and Home & Business Solutions. Based in Stamford, Connecticut, General Electric Capital Corporation generated $46 billion of revenue in 2011 as GE's wholly-owned finance subsidiary.

The principal methodology used in rating General Electric Company was Global Heavy Manufacturing Rating Methodology published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

The principal methodology used in rating General Electric Capital Corporation, General Electric Capital Canada Inc., General Electric Capital Services, Inc., GE Japan Funding K.K., GE Capital UK Funding, GE Capital Australia Funding Pty. Ltd.,GE Capital Canada Funding Company, GE Capital CFE, Inc., GE Capital European Funding, GE Capital Franchise Finance Corporation, GE Capital New Zealand Funding, GE Capital Sukuk Ltd, GE Capital Trust I, GE Capital Trust II, GE Capital Trust III, GE Capital Trust IV, GE Capital Trust V, Arden Realty Limited Partnership, Monogram Credit Card Bank of Georgia , Security Capital Group Incorporated, and SUSA Partnership, L.P., was the Finance Company Global Rating Methodology published March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's current ratings on General Electric Company and its affiliates are:

General Electric Company

Long Term Issuer Rating of Aa3

Senior Unsecured domestic currency ratings of Aa3

Senior Unsecured Shelf domestic currency ratings of (P)Aa3

Subordinate Shelf domestic currency ratings of (P)A1

Commercial Paper ratings of P-1

General Electric Capital Corporation

Long Term Issuer Rating of A1

Senior Unsecured domestic currency ratings of A1

Senior Unsecured foreign currency ratings of 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 MTN Program domestic currency ratings of (P)A2

Preferred Stock domestic currency ratings of A3 (hyb)

Senior Unsecured Shelf domestic currency ratings of (P)A1

Subordinate Shelf domestic currency ratings of (P)A2

Junior Subordinate Shelf domestic currency ratings of (P)A2

Preferred Shelf domestic currency ratings of (P)A3

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

BACKED Senior Unsecured domestic currency ratings of Aaa

BACKED Senior Unsecured foreign currency ratings of Aaa

BACKED Senior Unsecured Bank Credit Facility domestic currency ratings of A1

BACKED Subordinate domestic currency ratings of A1

General Electric Capital Canada Inc.

BACKED Senior Unsecured domestic currency ratings 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 A1

BACKED Commercial Paper domestic currency ratings of P-1

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

GE Japan Funding K.K.

BACKED Senior Unsecured domestic currency ratings of A1

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 Commercial Paper domestic currency ratings of P-1

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

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 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

Outlook Actions:

..Issuer: General Electric Company

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

..Issuer: Arden Realty Limited Partnership

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

..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 CFE, 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 Franchise Finance Corporation

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

..Issuer: GE Capital Sukuk Ltd

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

..Issuer: GE Capital Trust I

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

..Issuer: GE Capital Trust II

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

..Issuer: GE Capital Trust III

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

..Issuer: GE Capital Trust IV

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

..Issuer: GE Capital Trust V

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

..Issuer: GE Capital UK Funding

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

..Issuer: GE Japan Funding K.K.

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

..Issuer: General Electric Capital Canada Inc.

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

..Issuer: General Electric Capital Corporation

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

..Issuer: General Electric Capital Services, Inc.

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

..Issuer: Monogram Credit Card Bank of Georgia

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

..Issuer: Security Capital Group Incorporated

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

..Issuer: SUSA Partnership, L.P.

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

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the ratings for General Electric Company are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Information sources used to prepare the ratings for General Electric Capital Corporation, General Electric Capital Canada Inc., General Electric Capital Services, Inc., GE Japan Funding K.K., GE Capital UK Funding, GE Capital Australia Funding Pty. Ltd.,GE Capital Canada Funding Company, GE Capital CFE, Inc., GE Capital European Funding, GE Capital Franchise Finance Corporation, GE Capital New Zealand Funding, GE Capital Sukuk Ltd, GE Capital Trust I, GE Capital Trust II, GE Capital Trust III, GE Capital Trust IV, GE Capital Trust V, Arden Realty Limited Partnership, Monogram Credit Card Bank of Georgia , Security Capital Group Incorporated, and SUSA Partnership, L.P., are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The person who approved General Electric Capital Corporation credit ratings is: Robert Young, Managing Director - Financial Institutions Group, JOURNALISTS: 212-553-0376, SUBSCRIBERS: 212-553-1653

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance 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 downgrades GE rating to Aa3, GE Capital to A1
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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