NEW YORK Dec 2 Moody's Investors Service on
Tuesday affirmed its top "Aaa" rating on General Electric Co
(GE.N) after the conglomerate said it will take more steps to
bolster its financial arm, General Electric Capital Corp.
Moody's also gave a stable outlook to the "Aaa" ratings on
GE and GE Capital, meaning a rating change is not expected over
the next 12 to 18 months.
GE on Tuesday said it expects fourth-quarter profit toward
the low end of its prior forecast and is looking for ways to
reduce costs. It also said it is looking to lower leverage at
GE Capital and is considering moving about $5 billion in
capital into that business.
After the news, the cost of protecting GE Capital's debt
with credit default swaps was little changed from Monday's
closing level of about 490 basis points, or $490,000 a year to
protect $10 million of debt, according to Tradition Asiel
GE also said it would keep its annual dividend rate of
$1.24 per share through 2009 even as some investors worried it
would cut the payout as a cash-saving measure. Based on
Monday's closing price for GE's common stock of $15.50 a share,
its shares now offer an dividend yield of 8 percent, the fourth
richest in the Dow Jones industrial average .DJI and about 2
percentage points higher than the yield on GE's 10-year bonds.
GE Capital's bonds and credit default swaps have been
trading far weaker than their actual "Aaa" ratings as investors
worry about a higher risk of delinquencies and large funding
requirements at the unit.
GE Capital's bonds on Monday were trading as though the
company were rated "A1," or four steps below its actual rating,
according to Moody's Investors Service's credit strategy group.
Its credit default swaps were trading as though it were rated
"Ba1," the top junk rating category and 10 steps below its
Moody's said changes announced by GE on Tuesday will
bolster existing plans to improve liquidity and capital at GE
Capital. Specifically, the company is targeting a cut in
outstanding commercial paper by nearly $40 billion, will
diversify funding sources to include more funding from deposits
and other alternatives, and reduce investments in riskier
assets such as mortgages, Moody's said.
"Moody's expects these changes in GECC's financial policies
to be permanent and therefore supportive of the firm's
ratings," the agency said.
(Reporting by Dena Aubin; Editing by Neil Stempleman)
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