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S&P Cuts GE's Credit Rating on Possible Deal-Related Debt

Sept. 26, 2016
GE is overhauling is operations and the cut should come as little surprise after CEO Jeffrey Immelt said last year that the company might be willing to sacrifice its strong credit rating while adding as much as $20 billion of additional debt to support expansion plans.

General Electric Co.’s credit rating was cut by S&P Global Ratings on concerns that the industrial giant may add debt to support future acquisitions.

The long-term corporate rating for GE and GE Capital Global Holdings LLC was reduced to AA- from AA+, S&P said in a statement, adding that GE’s outlook is stable.

“We assume that the increase in the company’s leverage will, at least for the next couple of years, more likely stem from potential future acquisitions than substantial leveraged share repurchases or significant underfunded post-retirement benefit obligations,” S&P said in the statement. “We consider GE’s industrial business strengths to be undiminished.”

GE CEO Jeffrey Immelt said last year that the company may be willing to sacrifice its traditionally strong credit rating while adding as much as $20 billion of additional debt to support expansion plans. The Boston-based company is overhauling its operations, including selling most consumer and finance divisions, to refocus on manufacturing heavy-duty machinery such as jet engines and gas turbines.

GE has announced several acquisitions in recent weeks, including a $495 million deal for software developer Meridium Inc. and plans to buy a pair of 3-D printing companies for $1.4 billion. Last year, GE completed its largest-ever takeover when it bought the energy operations of Alstom SA.

The addition of leverage to support acquisitions may push GE’s ratio for adjusted debt relative to earnings before interest, taxes, depreciation and amortization to more than two times, higher than S&P had expected, the agency said.

Moody’s Investors Service cut its rating on GE to A1 in April 2015, after the company announced plans to exit the bulk of its lending business, according to Bloomberg data. Fitch Ratings has an AA- rating. Both companies assigned a stable outlook.

By Richard Clough

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