GE Capital Still Ticking
by: Carl Gutierrez and Miriam Marcus
Conglomerate's triple-A rating might not stand, but it's unlikely to fall too far.
Wall Street may be expecting a cut to General Electric’s credit rating, but the wound likely won’t be too deep. The conglomerate drew a modicum of strength Thursday from comments that its financial arm was likely to remain a blue-chip credit as Chief Financial Officer Keith Sherin insisted there was no "time bomb" hidden in its GE Capital finance arm.
Fixed-income research service Gimme Credit recommended that investors buy General Electric Capital's nine-year notes, saying the company will likely remain a top-tier credit in the AA range. Gimme Credit acknowledged that 2009 will probably be a tough year for both GE Capital, the finance arm of General Electric (nyse: GE - news - people ), as well as the parent company, but the research service said it continued to view the consolidated firm as a AA credit after factoring in parent-company support, Gimme Credit analyst Kathleen Shanley said in a research note on Thursday. For now, both parent and opaque finance subsidiary are rated triple-A by the major credit agencies, which has historically allowed GE Capital to borrow money very cheaply, but that pristine level is in doubt.
The two top credit-rating agencies are evaluating their ratings on GE's debt. Moody's Investors Service is reviewing its "triple-A" on GE for a possible downgrade, and Standard & Poors has a negative outlook on its bonds.
Gimme Credit's report came on the same day CFO Sherin of General Electric said during a television interview that GE Capital will be profitable in the first quarter and that speculation about GE risks are overdone. (See “Bears Feast On GE.”) He also said GE can fund itself through 2010 without having to raise capital.
Not everyone agrees. On Tuesday, UBS analyst Jason Feldman said GE may need to raise funds, (See “GE May Need More Capital,”) despite the expected $9.0 billion annually in savings resulting from Friday’s dividend cut. (See "GE Turns On The Thrift.")
Thursday's developments kept General Electric's shares in positive territory some of the day while the major indexes languished on renewed concerns over General Motors and the banking sector. (See "Street's Optimism Wanes.") GE shares closed down just 3 cents, or 0.5%, at $6.66, in trading in New York.
source ; Forbes.com
