GE's Credit Risk Rises as Insurance Charge Spooks Investors
(Bloomberg) -- The cost of insuring against potential losses on General Electric Co.’s bonds rose this week as a larger-than-expected charge and growing debt pressures spooked investors.
The premium on GE’s five-year credit-default swaps has jumped more than 20 basis points to 59 basis points since last Friday, which means that it would now cost $59,000 annually to protect $10 million of GE debt, according to data provider CMA. The cost of the swaps rose above a benchmark credit-default swaps index by the most in more than a year. The Markit CDX North America Investment Index was trading at 47.5 basis points.
That said, the jump hardly indicates that GE is in imminent danger of defaulting on its A rated debt. The cost of credit-default swaps on GE has risen from a five-year low earlier this month and is still a fraction of levels seen during the Great Recession in 2008.
A GE representative declined to comment on the trading.
The Boston-based company unnerved investors when it disclosed that it would take a $6.2 billion charge and set aside $15 billion in the coming years to add to reserves for a portfolio primarily of long-term care insurance policies. The announcement, along with comments from Chief Executive Officer John Flannery suggesting GE may break into separate companies, reignited fears over the problems GE still has to deal with across its industrial and financial businesses.
“It came with no prior announcement," said Joel Levington, credit analyst at Bloomberg Intelligence. “It makes you wonder what other skeletons they have in the closet.”
The company’s bonds have also been hit in the past week to trade multiple notches below their assigned credit ratings, according to a report by Levington. Ratings firms were unfazed though, as the major U.S. credit graders affirmed their investment-grade ratings for the company.
©2018 Bloomberg L.P.