GE’s (NYSE: GE) myriad of headwinds have generally spurred jitters among its creditors, as the beleaguered industrial conglomerate contends with constructing a sound financial strategy.
The market’s perception of Boston-based GE’s creditworthiness has been increasingly waning, amid a lack of clarity in its strategic plans to reduce leverage, as well as amid legal probes, leadership change, and cuts to its credit rating.
The option-adjusted spread (OAS) on the company’s bonds gapped wider by 8bps on the day Tuesday to more than 245bps, after announcing it was accelerating its planned separation from integrated oil subsidiary Baker Hughes (BHGE).
Among the terms of the agreement, GE aims to sell part of its stake in BHGE for about US$2.1bn, as well as commit to a share buyback by BHGE for around US$1.5bn. Through the transactions, GE expects to maintain its ownership interest in BHGE above 50%, with its remaining stake subject to a 180-day lock-up.
The companies also agreed on a release from the lock-up restrictions under their stockholders’ agreement that previously prevented GE from selling BHGE stock until July 2019.
Following the announcement, Gimme Credit analyst Carol Levenson noted that GE “demonstrated a new sense of urgency about raising cash, presumably to pay down debt and/or to bolster its cash reserves and liquidity.” She said that raising roughly US$4bn “in a hurry without sacrificing much except for its BHGE dividends is an impressive feat,” however selling its stock close to its five-year low is “less than ideal timing and shows an element of desperation.”
GE’s shares have shed over 75% of their value from their five-year peak of US$32.93 set in mid-July 2016, amid other headwinds, including an ongoing probe into its accounting practices by the U.S. Securities and Exchange Commission and Department of Justice.
The company’s shares were last quoted trading at around US$8.69 intraday Wednesday, according to the IBKR Trader Workstation.
Meanwhile, Levenson added that from a bond investor’s perspective, GE’s recently released third quarter earnings report and call were “more noteworthy for what they left out than for what they included.” She cited, for example, that its management no longer presented a year-end cash target of US$15bn or stated it would reduce industrial net debt by US$25bn by 2020.
