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Still Investment Grade, But For How Long?

02 October 2018 by lberuti

Despite its 126-year history, GE ( General Electric Company ) is very much a work in progress, and people fear it may take years to reset its discipline and culture. The company announced yesterday that it had ousted its CEO and hired Larry Culp, a turnaround expert, to replace him. Along with announcing the new CEO, GE said profit this year will miss forecast as its GE Power business has been performing worse than it had expected and will generate less cash flow than its prior forecast. The rating agencies all cited the performance of that business, which builds turbines for power plants, as a reason for potential reviews for downgrade. In fact, today, S&P decided it was time to act and they revised GE’s rating down to BBB+. Business metrics are still poor, and some reckon that the negative rating cycle which has knocked off three notches in less than a year – GE was still a AA- company in October 2017 – could continue. Investors showed their caution by pushing its 5-year risk premium 13bps wider to 84bps.