NEW YORK, Dec 2 (Reuters) - 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 Securities.
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 actual rating.
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) (firstname.lastname@example.org; +1-646-223-6325; Reuters Messaging: email@example.com))