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GE Plans $5 Billion Debt Buyback to Help Tame Balance Sheet

The buyback is part of a larger push by Larry Culp, CEO, to turn the company around after its recent plunge.

General Electric Co. plans to buy back as much as $5 billion of bonds as the manufacturer seeks to cut its debt load as part of its turnaround.

The company said that it would repurchase up to $2.5 billion of dollar debt and the equivalent of $2.5 billion (2.28 billion euros) of euro-denominated notes. GE said in its statement on Thursday that it won’t expand the size of the buyback plan.

GE Chief Executive Officer Larry Culp is overhauling a company that suffered from one of its worst slumps in its 127-year history. Profits have dropped amid flagging demand for gas turbines and high costs.

Since taking the helm last year, Culp has been pruning the company’s assets to focus on making jet engines, power equipment and medical scanners. GE said Wednesday that it is raising about $2.7 billion by giving up control of oil-services company Baker Hughes.

Cutting its debt load is key to turning itself around. GE has more than $100 billion of short- and long and long-term debt outstanding, and is one of the top 10 biggest issuers of corporate bonds in the Bloomberg Barclays US Corporate Bond index outside of the financial sector. The company said in March that it was looking at buying back debt, and said in January that it doesn’t expect to issue new debt until 2021.

In Thursday’s statement, the company reiterated it seeks to reduce its debt load to under 2.5 times a measure of earnings and is evaluating other options to cut debt, including pension funding and intercompany debt repayment between GE and its financial services unit.

GE shares last month posted their biggest one-day plunge in 11 years after financial investigator Harry Markopolos skewered the company’s accounting. Markopolos, best known for blowing the whistle on Bernie Madoff, accused GE of fraud over the handling of its insurance and oil businesses and said “impending losses will destroy GE’s balance sheet.”

The Boston-based company called the claims meritless, with Culp criticizing the report as “market manipulation, pure and simple.” A number of Wall Street analysts and some prominent investors came to GE’s defense as well.

The buyback offer expires on Oct. 9. Holders that submit their bonds by Sept. 25 are eligible to receive an early participation premium. The dollar-denominated bonds that can be bought back mature between 2022 and 2044, while the euro-denominated notes are due between 2022 and 2037. The company said $8 billion of dollar-debt and 10.5 billion euros of euro-denominated debt is eligible for the offer.

JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. are managing the buyback. D.F. King & Co. is serving as the information and tender agent.

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