Barely 24 hours after Culp grew to become CEO
, S&P World Scores downgraded the credit score rankings of GE (GE
) and GE Capital. Moody’s and Fitch warned they may do the identical.
All three rankings companies cited GE’s elevated leverage and shrinking money flows — an alarming pattern exacerbated by critical issues at GE’s energy division. GE mentioned on Monday that plunging revenue at GE Energy
will trigger the guardian firm to overlook targets in 2018.
Over time, GE has piled on tons of debt brought on by poorly-timed offers
, an enormous pension deficit
and misguided share buybacks.
Underscoring the dimensions of the issue, Moody’s mentioned that GE’s “very elevated leverage” could lead on it to downgrade the corporate’s score by a number of notches. Scores downgrades could make it costlier for firms to borrow cash.
The excellent news is that S&P up to date its outlook on GE to “secure” as a result of the agency expects leverage and money movement will enhance within the coming years.
Nonetheless, GE’s debt issues could drive the corporate to reexamine its $4.2 billion dividend
. GE reduce the dividend
final yr for simply the second time because the Nice Despair.
However GE’s funds have deteriorated additional. S&P listed the dividend as one among a number of levers Culp may pull to cut back debt.
In an announcement, GE mentioned it has a “sound liquidity place” that features money and working credit score traces.
Repeating feedback made by Culp on Monday, GE mentioned it stays “dedicated to strengthening the steadiness sheet together with deleveraging.”
Now that he is in cost, Culp might want to resolve if he needs to go ahead with former CEO John Flannery’s plans to break-up GE.
Flannery’s turnaround plan included exiting varied companies, together with oil and gasoline, well being care and the century-old railroad division. Proceeds from the gross sales would then be used in the direction of paying down debt.
However shrinking GE additionally makes the corporate extra depending on the remainder of its portfolio — with GE Energy being the largest remaining enterprise
. Meaning slumping energy revenue provides GE much less firepower
to pay down debt.