S&P Acts Tough On General Electric - Credit Rating Downgraded

  • Oct 03, 2018 AEST
  • Team Kalkine
S&P Acts Tough On General Electric - Credit Rating Downgraded

The chief executive officer or CEO of General Electric has been removed and Lawrence Culp would be taking the charge. S&P has allotted a new rating to the company of BBB+ thus, downgrading the rating from A. The harsh step by S&P has been taken after the company removed its CEO and declared that the power business of General Electric would be taking a charge. The balance sheet of General Electric’s power business might witness the non-cash write-down of the goodwill which would amount to approximately $23 billion.

However, amidst this news, the company has something positive to share with the market participants. S&P has improved the outlook on General Electric from negative to stable. A possible reason for the positive outlook on GE could be because of the new CEO as he is regarded as the turnaround specialist.

According to S&P, the news related to the power business of GE was the primary reason that they came up with the new credit rating of BBB+. The robust performance with regard to the health care as well as aviation would be offset by its power segment which is struggling a bit. This rating agency views that the company has weaker competitive positioning and thus, the company no longer qualifies for the “A” rating. The future of GE is expected to be relied on spin-offs related to the company’s exposure in oilfield services group as well as the healthcare business. However, the company’s dividend-paying capacity would also help in assessing the future performance. The oilfield services group which has been referred above is Baker Hughes.  

Another global credit rating agency, Moody’s has also decided to push the GE’s credit rating in the “review” mode and the rating agency might also downgrade the rating. According to Moody’s, it decided to keep the credit rating of the company in the review mode primarily because of the expected negative impact of the power business of GE. The company might fail to meet the FCF or free cash flow and earnings guidance for the present year.

Moody’s also added that the downward momentum in the power business of GE is expected to continue for some time. According to General Electric, the liquidity position of the company is decent. The management of General Electric added that they would also be working towards improving the balance sheet.

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