Fitch Assigns Final Rating of ‘BBB’ to GE Capital Funding’s Senior Unsecured Debt
MAY 19, 2020 - 6:45 am
Fitch Ratings has assigned a final rating of ‘BBB’ to GE Capital Funding’s issuance of $4.5 billion in aggregate of senior unsecured debt. The issuer is a newly formed, direct financing subsidiary of GE Capital Global Holdings, LLC (GE Capital; BBB/F3/Stable).
The assignment of the final rating follows the receipt of documents conforming to information already received. The rating on the notes is aligned with all other senior unsecured debt issued by GE Capital, reflecting the benefit of an unconditional guarantee provided by General Electric Company (GE), as the parent guarantor. The senior unsecured debt ratings of the issuer and GE Capital subsidiaries are equalized with GE Capital’s Long-Term Issuer Default Rating (IDR) and reflect the largely unsecured funding profile and Fitch’s expectation of average recoveries in a stressed scenario as well as parent guarantees provided by GE.
GE Capital’s ratings and Rating Outlook reflect the linkage to the ratings and Outlook of GE. Fitch views GE Capital as a core subsidiary of GE, primarily driven by the explicit guarantee provided by GE with respect to all of GE Capital’s outstanding debt. This view is also driven by strategic alignment between the two entities, shared branding and the fact that GE Capital is wholly owned by GE.
Beyond these support driven considerations, Fitch also considers GE Capital’s leading franchise in the aircraft leasing space, sufficient liquidity and solid funding flexibility, which are counterbalanced by the company’s elevated leverage compared with stand-alone finance companies, reliance on wholesale funding sources and the cyclicality and residual value risk inherent in aircraft leasing. Fitch also believes there is the potential for higher than previously expected capital contributions to the run-off insurance operations (North America Life and Health, or NALH), in light of the recent and significant decline in interest rates and equity markets due to the global spread of the coronavirus.
Fitch does not expect the issuance will result in a material impact to GE Capital’s leverage, as proceeds from the issuance will be used to reduce debt, including funding tender offers of $4.5 billion for outstanding GE Capital notes maturing in 2021-2023. GE Capital’s leverage, defined by Fitch as gross debt to tangible equity (shareholder’s equity including preferred equity less goodwill and intangible assets), was 3.9x as of March 31, 2020, down modestly from 4.1x at year-end 2019. Fitch expects tangible leverage to remain around 4.0x over the medium term. Fitch believes GE will continue to provide capital contributions to GE Capital to maintain leverage at appropriate levels relative to the asset mix.
As of March 31, 2020, GE Capital had $13.5 billion of liquidity, consisting of unrestricted and restricted balance sheet cash and cash equivalents. GE Capital’s total liquidity sources (cash and readily available investment securities) divided by debt maturing in 2020 of $10.6 billion was 1.3x at March 31, 2020. Pro forma for the repayment of $6.0 billion in intercompany loans from GE and the recent tender of $5.4 billion of debt due in 2020, Fitch believes the liquidity coverage ratio improved to 2.6x. This calculation excluded $20 billion of committed credit lines and $7 billion of committed operating lines at GE, which are also available to GE Capital. In April 2020, the company refinanced the $20 billion of committed credit lines to $15 billion and extended the maturity to April 2023. GE expects to maintain $20 billon in aggregate credit lines going forward. GE Capital had no outstanding CP as of March 31, 2020, which Fitch believes results in improved liquidity coverage compared to prior periods.
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