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Moody's Cuts GE Debt Ratings Due To Higher Funding Risks Of Capital Unit

4/4/2012 1:44 AM ET

Conglomerate General Electric Co.'s (GE: Quote) senior unsecured debt rating was downgraded by Moody's Investors Service due to the impact of "higher risk profile" of its finance unit General Electric Capital Corp.

In a statement on Tuesday, Moody's said it cut the rating on GE one level to Aa3 and its rating on GE Capital two steps to A1. Previously, the agency assigned ratings of Aa2 to both entities. Its for the first time in two decades that the unit's own grade was cut below that of the parent, reports noted.

Meanwhile, Moody's affirmed the Prime-1 ratings of both companies and the rating outlook for GE and GECC is stable.

The downgrades, concluding the review initiated on March 19, resulted from the implementation of Moody's revised global rating methodology for finance companies.

GE's Aa3 rating broadly reflects the strong competitive positions of its industrial businesses and expectations that they should continue to demonstrate solid operating performance over the near- to intermediate-term, generating strong levels of profitability.

Senior Vice President Russell Solomon, Moody's lead analyst for GE, said, "We believe that GE's industrial operations continue to have many Aaa-like credit characteristics. The downgrade reflects Moody's view of the heightened risk profile inherent to finance companies like GECC, which has strategic importance to GE, rather than any deemed incremental risk related to GE's industrial business lines."

According to the agency, the risk profiles of market-funded financial institutions, including GECC, are higher than was previously reflected in their ratings. Even though the unit has improved its liquidity and capital levels since the onset of the credit crisis, there remain material risks associated with the firm's funding model, it noted.

Moody's noted that the unit's support from GE is highly likely but not certain in the absence of a guarantee and an uplift in its rating would require a higher degree of support certainty.

Moody's added that it believes GE's performance will continue to improve, particularly in light of the recent reduction of exposure to short-cycle businesses. Despite ongoing caution in the economic environment and tight credit market conditions, Moody's expects GE's long-cycle businesses to continue to outperform industry peers.

GE closed Tuesday's trading at $19.96, down $0.06 or 0.30 percent.

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by RTT Staff Writer

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