GE Credit Rating Is Cut by Moody's Amid Drag From Power Unit

(Bloomberg) -- General Electric Co.’s credit rating was cut by Moody’s Investors Service amid a sharp downturn in the manufacturer’s power-equipment business.

Moody’s lowered GE and its finance unit each by one notch to A2, five steps above junk, according to a statement Thursday by the ratings company. That’s two levels worse than GE’s grades from S&P Global Ratings and Fitch Ratings.

“The downgrades reflect the severe deterioration in the financial performance of GE’s power segment that will last through at least 2019,” Moody’s said. Along with slumping oil and locomotive markets, “GE has to contend with weak earnings and cash flows in several segments.”

The ratings cut marks the latest blow to GE, which has posted the worst share decline by far on the Dow Jones Industrial Average this year. Chief Executive Officer John Flannery, who took the reins three months ago, has replaced some top managers, announced plans to unload at least $20 billion of businesses and halved the quarterly dividend in an effort to save cash.

GE’s bonds were little changed in early trading. The shares rose less than 1 percent to $18.27 at 11:09 a.m. in New York.

GE in recent years has sold off most of its finance unit, GE Capital, reducing the need for higher ratings -- and the lower borrowing costs that come with it.

Investors already treat GE like a single-A rated company, a level Moody’s first downgraded the company to in 2015. GE’s 4.418 percent bonds due 2035 are trading at 1.1 percentage points above Treasuries, according to Trace bond price data. The ICE BAML Index for companies rated A through BBB has a spread of 1.6 percentage points.

S&P Global Ratings and Fitch Ratings still have the company at AA-, though both carry negative outlooks. Those ratings have come under pressure amid GE’s cash-flow shortfalls and falling earnings. Moody’s said the outlook for GE is stable.

A representative of the Boston-based company declined to comment.

©2017 Bloomberg L.P.

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