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GE Capital’s Rating May Be Cut Below Parent; First Time in Two Decades

March 20, 2012, 08:00 AM
Filed Under: Regulatory News

Moody's Investors Service placed the Aa2 senior unsecured ratings of General Electric Company (GE) and General Electric Capital Corporation (GECC) under review for possible downgrade. The Prime-1 short-term ratings for both companies were affirmed. The review is based on Moody's view that finance companies have higher risks than previously considered, implying a wider gap between the risk profiles of GECC and GE's industrial businesses. This could result in Moody's determining that the GE and GECC ratings should no longer be equalized.

The review is based on Moody's view that the risk profile of market-funded financial institutions, including GECC, is higher than previously reflected in their ratings. With a large and recurring need for wholesale funding to support its operations, GECC is inherently vulnerable to fluctuations in investor confidence relating to the firm's creditworthiness and to funding conditions in the market generally. GECC has improved its liquidity and capital levels since the
onset of the credit crisis. However, Moody's believes that these steps are unlikely to have fully neutralized the risks associated with the firm's funding model. The rating implications of these structural and enduring risks are explained in Moody's revised finance company rating methodology, which was released on March 19, 2012.

"We continue to view GECC as one of the strongest financial companies in the world; however, our views about the credit risks of firms in this sector that rely on confidence-sensitive funding have changed. We will review the company's ratings in the context of this updated sector view and will also consider GECC's own specific credit drivers," said Moody's senior analyst Mark Wasden.

"GE's industrial businesses continue to perform well and collectively possess many Aaa-like credit characteristics," noted Moody's senior vice president Russell Solomon, lead analyst for GE. "The industrial company's Aa2 rating already incorporates some drag on its creditworthiness due to its explicit and implicit commitment to provide financial support to GECC if needed," Solomon added.

To read the full Moody’s Investor Service press release, click here.

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