BOSTON General Electric Co acknowledged on Thursday that a cut in its top-tier credit rating was possible, but its chief financial officer said there was no "time bomb" hidden in its hefty finance arm.
Worries its finance unit might not have sufficient reserves to cover a feared surge in defaults as a deep recession makes it harder for consumers and businesses to pay their bills sent the shares of the U.S. conglomerate lower again on Thursday, closing off 3 cents to $6.66.
After three days of sharp declines, the shares of the world's largest maker of jet engines and electricity-producing turbines leveled off after CFO Keith Sherin sought to soothe jittery investors.
Sherin told CNBC it was possible the company's coveted triple-A rating, which has historically allowed GE Capital to borrow money very cheaply, could be cut to the double-A range, but he could not imagine it being cut further.
"We're getting a lot of speculation about the risk in GE Capital, obviously, and I think it's overdone," said Sherin, a GE vice chairman. "We can basically fund ourselves all the way through 2010 without any issues."
Loomis Sayles' Dan Fuss, one of the biggest and most widely followed U.S. bond managers, said he may add to his positions in the company's bonds.
"It is probably a 'double-A'," said Sayles, vice chairman of the Boston-based money manager.
Fixed-income research service Gimme Credit recommended investors buy GE Capital's nine-year bonds, saying GE would likely remain a top-tier credit in the "double-A" range.
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 S&P has a negative outlook on its bonds.
GE shares were little changed on a day U.S. markets tumbled, with the Dow Jones industrial average down 4.1 percent to a 12-year low. GE fell 0.5 percent on the New York Stock Exchange.
The cost of insuring GE Capitals' debt through credit- default swaps rose on Thursday, according to Phoenix Partners Group. Investors were paying 17.5 percent upfront, meaning that it required an immediate $1.75 million payment plus an additional $500,000 per year to ensure $10 million of GE debt for five years. At Wednesday's close they had stood at 15.5 percent upfront.
NEED FOR TRANSPARENCY
Worries GE Capital is not prepared for rising defaults have pounded GE shares down 59 percent this year, a sharper decline than the widely watched Dow or Standard & Poor's 500 index.
The entire financial sector has fallen dramatically, with Citigroup Inc down 85 percent and Bank of America Corp down 77 percent.
"We recognize the need to be more transparent," Sherin said, noting the company would meet investors later this month to provide an in-depth look into GE Capital.
GE said it would disclose the results of a recent stress test of its finance business when it reports first-quarter results in April.
Sherin said GE Capital does not need new capital and will be profitable this quarter.
Investors reacted warmly to his comments on GE Capital.
"We're willing to take them on their word on the no 'time bomb' thing," said Mike McGarr, portfolio manager at Becker Capital Management in Portland, Oregon, which owns GE shares. "I'd like to know how poorly the UK mortgage portfolio is performing. I'd like to know if there are any particular problems in the leasing portfolio."
Some investors and analysts said the selling, which comes at a time of intense market volatility, may be excessive. They note GE's industrial businesses remain on more solid footing.
"What is happening now is that both the fast-money guys like hedge funds who are looking to make money quickly and the long-term investment advisers and trust banks that are rethinking this are selling," said Michael Vogelzang, president and chief investment officer at Boston Advisors, which owns GE shares. "GE is at ground zero of the storm right now."
Deutsche Bank's Nigel Coe wrote in a client note: "Our view is that while there is a whiff of further funding requirements -- be it public equity or government funded -- the stock will remain oversold and highly volatile.
Deutsche Bank rates GE "hold," with a $12 price target.
The Fairfield, Connecticut-based company last week cut its dividend 68 percent in a move it said will save $9 billion a year.
(Reporting by Scott Malone; Additional reporting by Svea Herbst-Bayliss in Boston; Jennifer Ablan, Jonathan Stempel, Dena Aubin and Rodrigo Campos in New York; Editing by Patrick Fitzgibbons, Gary Hill and Andre Grenon)