Fitch Ratings has downgraded the Long- and Short-Term Issuer Default Ratings (IDRs) for General Electric Company (GE) and GE Capital Global Holdings, LLC (GE Capital) to 'A+' and 'F1' from 'AA-' and 'F1+'. The Rating Outlook is Negative.
The downgrade of GE's ratings considers the deterioration in the company's operating and financial performance including a slower return to higher margins and stronger free cash flow than previously anticipated by Fitch. GE's performance is being affected by secular changes in the Power segment's gas turbine business that has reduced long term prospects for growth. Fitch believes the company will maintain a strong balance sheet and a high level of financial flexibility which considers a smaller albeit sizeable GE Capital, but more in line with the new rating. GE is becoming less diversified as it realigns its businesses, but overall diversification remains meaningful.
The Negative Outlook incorporates concerns about the pace at which GE returns to stronger free cash flow (FCF); the extent of restructuring required to reduce the company's cost structure and increase margins in the Power, Renewable Energy and Oil & Gas segments; and structural changes at the Power segment including industry overcapacity, the growing role of energy efficiency, and a shift toward renewable energy. GE has identified several actions that should improve its operating performance, but the implementation could occur over an extended period and Fitch believes there are numerous execution risks. Cash flow available to the industrial business will be reduced through at least 2018 by the suspension of dividends from GE Capital while it reviews its insurance reserves.
The IDRs for GE Capital and its rated subsidiaries are linked to and equalized with those of GE, reflecting Fitch's view that GE Capital is a core subsidiary of GE, as defined under Fitch's 'Global Non-Bank Financial Institutions Rating Criteria.'