Barely 24 hours after Culp turned CEO, S&P World Scores downgraded the credit score rankings of GE (GE) and GE Capital. Moody’s and Fitch warned they may do the identical.
All three rankings companies cited GE’s elevated leverage and shrinking money flows — an alarming pattern exacerbated by critical issues at GE’s energy division. GE stated on Monday that plunging revenue at GE Energy will trigger the father or mother firm to overlook targets in 2018.
Through the years, GE has piled on tons of debt brought on by poorly-timed offers, an enormous pension deficit and misguided share buybacks.
Underscoring the dimensions of the issue, Moody’s stated that GE’s “very elevated leverage” may lead it to downgrade the corporate’s ranking by a number of notches. Scores downgrades could make it dearer for firms to borrow cash.
The excellent news is that S&P up to date its outlook on GE to “stable” as a result of the agency expects leverage and money movement will enhance within the coming years.
Nonetheless, GE’s debt issues could drive the corporate to reexamine its $4.2 billion dividend. GE lower the dividend final 12 months for simply the second time because the Nice Melancholy.
However GE’s funds have deteriorated additional. S&P listed the dividend as certainly one of a number of levers Culp might pull to scale back debt.
In an announcement, GE stated it has a “sound liquidity position” that features money and working credit score strains.
Repeating feedback made by Culp on Monday, GE stated it stays “committed to strengthening the balance sheet including deleveraging.”
Now that he is in cost, Culp might want to determine if he desires to go ahead with former CEO John Flannery’s plans to break-up GE. Flannery’s turnaround plan included exiting varied companies, together with oil and fuel, well being care and the century-old railroad division. Proceeds from the gross sales would then be used in the direction of paying down debt.
However shrinking GE additionally makes the corporate extra depending on the remainder of its portfolio — with GE Energy being the largest remaining enterprise. Which means slumping energy revenue offers GE much less firepower to pay down debt.