CLOSINGS: View Closings

GE's debt headaches are growing

General Electric's debt headaches are growing.GE's debt-riddled balance sheet already ...

Posted: Nov 2, 2018 2:59 AM
Updated: Nov 2, 2018 2:59 AM

General Electric's debt headaches are growing.

GE's debt-riddled balance sheet already forced out its CEO, led the storied company to slash its cherished dividend to a penny and prompted the sale of century-old businesses.

Banking, finance and investments

Business and industry sectors

Business, economy and trade

Commercial and residential property

Commercial property

Companies

Company activities and management

Diseases and disorders

Financial markets and investing

Financial performance and reports

Financial ratings

Financial results

General Electric Co

Headaches

Health and medical

Real estate

US dollar money markets

Now, GE's mountain of debt, caused by years of poorly-timed acquisitions and bad decisions, is forcing the company to wean itself off the $1.1 trillion commercial paper market in favor of more expensive bank financing.

It's an abrupt shift because GE (GE) was long one of the biggest issuers of commercial paper, a form of cheap short-term borrowing that businesses rely on to pay employees and finance inventories. Recall that GE was severely hurt when the commercial paper market froze during the 2008 financial crisis. Eventually the Federal Reserve stepped in with a rescue.

The top tier of the commercial paper market is only open to companies with the sturdieset balance sheets. GE and its $115 billion of debt no longer qualify.

GE lost access to the top tier after Moody's Investors Services downgraded the company's short-term credit rating on Wednesday in part because of its "deteriorating" power business. The downgrade followed a similar move by S&P Global Ratings in early October.

GE can still tap the second tier of the commercial paper market, but that corner of the market is smaller and more expensive. It's probably not big enough to meet all of GE's vast funding needs, according to Rene Lipsch, senior credit officer at Moody's. GE and GE Capital issued as much as $14.8 billion in commercial paper last quarter.

"Due to GE's high intra-quarter funding needs," Lipsch wrote in an email, "GE will have to utilize its revolving credit facilities, which will result in an increase in funding costs."

In other words, GE's borrowing costs are going up because of its weakened balance sheet.

"Nobody leaves" commercial paper "voluntarily," Carol Levenson, director of research at Gimme Credit, a corporate bond research firm, wrote in an email.

GE shares slumped 5% on Thursday and closed below $10 for the first time since March 2009.

Reduced flexibility

GE announced its retreat from the commercial paper market on Tuesday, a day before the well-telegraphed Moody's downgrade. Jamie Miller, GE's chief financial officer, said the plan is to reduce GE Capital's commercial paper balance to zero by the end of the year and reduce the overall company to a "smaller" level as well.

The good news is that GE has already been moving to shrink its short-term borrowings. And GE has $40 billion of credit lines with banks that it can use to fund the business. Miller said GE has tapped a "portion" of these revolvers.

The problem is that bank lines are more expensive and restrictive than the commercial paper market, which allows companies to quickly refinance their debt.

"This is a sign of reduced financial flexibility," Levenson said.

"GE has a sound liquidity position, including cash and operating credit lines," a GE spokesperson said in a statement. "The downgrade is manageable and we are prepared for it."

GE added that it's committed to strengthening its balance sheet by reducing leverage.

Dividend cut not enough

The painful dividend cut announced on Tuesday will save GE about $4 billion a year. The company is also planning to raise about $20 billion by getting rid of various businesses, including the healthcare division and its majority stake in oil and gas firm Baker Hughes.

However, those sales -- combined with the deep problems in its power division -- will also decrease GE's earnings firepower.

Despite GE's shrinking profits, its debt still remains hefty. GE and GE Capital listed total borrowings of $115 billion at the end of the third quarter, compared with $126 billion at the end of 2017.

After posting weaker-than-expected results on Tuesday, GE pushed back the timing on when it will achieve a stronger balance sheet. The company's new goal is to reduce its debt-to-earnings ratio to 2.5 over the "next few years." GE previously said it would hit this healthier leverage target by 2020.

GE is under pressure to clean up its balance sheet soon. In an SEC filing, GE warned that further downgrades could lift borrowing costs and potentially affect access to capital markets. The company said it could also be forced to post additional capital or collateral, hurting its capital position and liquidity.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 312969

Reported Deaths: 3637
CountyCasesDeaths
Hennepin661641115
Ramsey27766505
Anoka22149228
Dakota22015190
Washington13999115
Stearns13733116
St. Louis8747112
Scott846255
Wright775843
Olmsted665634
Sherburne587641
Clay498457
Carver474213
Blue Earth414116
Rice412836
Kandiyohi408122
Crow Wing359634
Otter Tail314322
Chisago311611
Nobles308730
Benton299451
Winona276930
Mower261623
Douglas260337
Polk256324
Morrison231629
Lyon218711
Beltrami217117
McLeod212812
Becker205415
Goodhue203228
Steele19497
Isanti190617
Itasca190423
Carlton185816
Todd181214
Nicollet162525
Mille Lacs153631
Freeborn15336
Le Sueur147011
Cass143710
Brown141315
Waseca139211
Pine13658
Meeker12879
Roseau11964
Hubbard114925
Martin113320
Wabasha10561
Redwood94619
Chippewa8877
Cottonwood8664
Renville86527
Dodge8600
Watonwan8544
Wadena8016
Sibley7934
Rock7779
Aitkin76730
Pipestone72518
Fillmore6990
Houston6984
Yellow Medicine64812
Pennington6478
Kanabec61913
Murray5873
Swift5838
Faribault5612
Pope5391
Clearwater5248
Stevens5103
Marshall4979
Unassigned49359
Jackson4881
Lake4226
Koochiching3926
Wilkin3895
Lac qui Parle3773
Lincoln3591
Norman3497
Big Stone3182
Mahnomen2964
Grant2796
Kittson2248
Red Lake2133
Traverse1481
Lake of the Woods1001
Cook720

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 227398

Reported Deaths: 2368
CountyCasesDeaths
Polk33642336
Linn14352165
Scott1124986
Black Hawk10893135
Woodbury10372126
Johnson955336
Dubuque923291
Story678822
Dallas637257
Pottawattamie631970
Sioux370325
Webster358535
Cerro Gordo357144
Marshall348546
Clinton331344
Buena Vista305414
Des Moines291520
Muscatine289268
Warren281914
Plymouth276042
Wapello255772
Jones232313
Jasper217944
Marion205320
Lee203917
Carroll198422
Bremer195212
Henry18307
Crawford174616
Benton170619
Tama154340
Jackson144613
Delaware144221
Washington141314
Dickinson139210
Boone137011
Mahaska126827
Wright12456
Clay11784
Buchanan117010
Hardin115810
Page11374
Hamilton11199
Clayton11175
Cedar108413
Harrison107729
Kossuth10667
Calhoun10617
Floyd105016
Mills10487
Fayette103910
Lyon10338
Butler10216
Poweshiek99313
Winneshiek97613
Iowa95812
Winnebago93023
Hancock8677
Grundy86311
Louisa86216
Sac8608
Chickasaw8574
Cherokee8484
Allamakee81811
Cass81623
Mitchell7984
Appanoose79312
Humboldt7715
Union7706
Shelby76511
Emmet76424
Guthrie75415
Franklin73921
Jefferson7142
Madison6864
Unassigned6690
Palo Alto6554
Keokuk5997
Howard5599
Pocahontas5584
Greene5250
Osceola5241
Ida48913
Clarke4874
Davis4709
Taylor4653
Montgomery46311
Monroe44412
Adair4418
Monona4352
Worth3630
Fremont3583
Van Buren3585
Lucas3256
Decatur3170
Wayne3007
Audubon2962
Ringgold2112
Adams1702
Rochester
Clear
14° wxIcon
Hi: 37° Lo: 19°
Feels Like: 14°
Mason City
Clear
11° wxIcon
Hi: 38° Lo: 18°
Feels Like: 11°
Albert Lea
12° wxIcon
Hi: 38° Lo: 19°
Feels Like: 12°
Austin
Clear
12° wxIcon
Hi: 38° Lo: 18°
Feels Like: 12°
Charles City
Clear
14° wxIcon
Hi: 37° Lo: 17°
Feels Like: 14°
Quiet Weather This Week
KIMT Radar
KIMT Eye in the sky

Community Events