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Rating Action:

Moody's downgrades GE's senior unsecured rating to A2, affirms short-term rating at P-1; outlook stable

16 Nov 2017

New York, November 16, 2017 -- Moody's Investors Service ("Moody's") downgraded the long-term ratings of General Electric Company ("GE"), including the senior unsecured rating to A2 from A1, and affirmed the short-term rating at Prime-1 (P-1). The rating outlook is stable.

RATINGS RATIONALE

The downgrades reflect the severe deterioration in the financial performance of GE's Power segment that will last through at least 2019. Along with the challenges in the Oil & Gas business posed by continued weakness in the global oil field services industry and the downturn in the North American market for freight locomotives, GE has to contend with weak earnings and cash flows in several segments that represent in aggregate about 50% of expected revenues in 2017.

As a result, GE's credit metrics are not expected to be consistent with expectations for the A2 rating over the next several years. Moody's estimates that debt/EBITDA will be approximately 3.4 times at year-end 2017, calculated with GE's 62.5% ownership in Baker Hughes, a GE Company, LLC ("Baker Hughes") on a deconsolidated basis, and 3.7 times in 2018. Debt/EBITDA would be no lower than 3.2 times in 2018 if calculated including GE's proportion of any distributions made by Baker Hughes.

Moody's does not anticipate that GE will allocate a meaningful portion of any proceeds from planned asset disposals to debt reduction in the near term to help expedite the restoration of its credit metrics. Over the last several years, GE pursued an aggressive financial policy that contributed to the weakening of its credit profile. The company used close to $25 billion of proceeds from asset disposals and dividends from GE Capital for share repurchases in 2016 and 2017, funded more than $10 billion of acquisitions with debt, and paid a dividend that increasingly outweighed GE's industrial free cash flows as GE Capital was downsized and challenges mounted in Oil & Gas, Transportation and Power.

Nevertheless, the A2 senior unsecured rating is supported by GE's profile as a formidable industrial enterprise with a significant and competitive presence in its core businesses derived from its technological leadership. A vast installed base and an equipment and services backlog of about $320 billion, close to 50% of which in the company's very profitable Aviation segment, will help to generate robust cash flows over time. In addition, the announced 50% reduction in GE's dividend is expected to result in positive free cash flow from GE's industrial businesses for the first time in several years, with Moody's estimating $2 billion in 2018, and steady improvements thereafter as the company focuses on its core business units. Including any cash distributions from Baker Hughes, RCF/Net debt could increase to as much as 20% in 2018, up from only 6% in 2017.

The stable rating outlook is predicated on Moody's expectation that the declines in revenues and operating profit in Power and Transportation 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 Baker Hughes on a deconsolidated basis.

The ratings could be upgraded if GE 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 could be downgraded if GE 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.

Downgrades:

..Issuer: General Electric Company*

*Inclusive of debt originally issued by General Electric Capital Corporation and certain of its subisidiaries, assumed by General Electric Company

.... Issuer Rating, Downgraded to A2 from A1

....Senior Unsecured Shelf, Downgraded to (P)A2 from (P)A1

....Subordinate Shelf, Downgraded to (P)A3 from (P)A2

....Preferred Shelf, Downgraded to (P)Baa1 from (P)A3

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to Baa1 from A3

....Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

....Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

....Subordinate Regular Bond/Debenture, Downgraded to A2 from A1

....Senior Secured Regular Bond/Debenture, Downgraded to A1 from Aa3

....Senior Subordinate Bond/Debenture, Downgraded to A3 from A2

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

....LT Revenue Bonds, Downgraded to A2 from A1

..Issuer: New York State Environmental Facilities Corp.

....Backed LT Revenue Bonds, Downgraded to A2 from A1

..Issuer: Upper Illinois River Valley Dev. Authority

....Backed LT Revenue Bonds, Downgraded to A2 from A1

Affirmations:

..Issuer: General Electric Company

....Commercial Paper, Affirmed P-1

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

....Other Short Term Revenue Bonds, Affirmed VMIG 1

..Issuer: New York State Environmental Facilities Corp.

....Backed Other Short Term Revenue Bonds, Affirmed P-1

....Backed Short Term Revenue Bonds, Affirmed P-1

Outlook Actions:

..Issuer: General Electric Company

....Outlook, Remains Stable

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

General Electric Company is a global diversified manufacturing company with operations in seven industrial segments: Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation and Lighting. Headquartered in Boston, Massachusetts, GE's industrial operations generated approximately $114 billion in the last 12 months ended September 2017. GE has a wholly-owned finance subsidiary, GE Capital Global Holdings, LLC, which generated about $10 billion of revenue in the last 12 months ended September 2017.

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.

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

No Related Data.
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