Moody’s considering GE downgrade after company said will miss earnings

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• General
  Electric on Monday announced a $23 billion charge in its
  struggling power business that will likely cause it to miss its
  2018 earnings guidance.
• Moody’s, a credit ratings agency, said Tuesday that it
  was reviewing the company’s financial situation and may
  downgrade its debt.
• 
  Follow
  GE’s stock price in real-time here.
  

Credit rating agency
Moody’s said Tuesday it placed General
Electric and its subsidiary GE Capital Global Holdings “on
review for downgrade” after the company
announced Monday it would likely miss 2018 earnings projections
thanks to a $23 billion charge in its struggling power
business.

Shares of GE fell about 1% following the announcement. 

Currently the company’s senior unsecured debt has a long-term
rating of A2 and a short-term rating of P-1. A downgrade, which
Moody’s says may not be limited to just one notch, could push
both the long- and short-term ratings out of the top prime
ratings, which range from P1 to P3.

Here’s a breakdown of the scale:

Moody’s

A downgrade to P-2 would mean GE has a “strong ability” to repay
short-term debt obligations, as opposed to a “superior ability”
at P-1.

“Among the range of issues that Moody’s will consider is the
impact on GE’s earnings and cash flow prospects of the continuing
deterioration in its Power business, which is likely to persist
for some time,” the agency said in a press release. “The dimmer
prospects for GE Power take on heightened importance given the
loss of free cash flow from GE’s planned divestitures, including
the highly cash generative GE Transportation and GE Healthcare.”

GE’s stock has sank more than 50% over the past year as its
struggles mount, but one Wall Street analyst said Tuesday the new
CEO — Lawrence Culp Jr, who previously sat on the board —

will likely signal an end to the stock’s near-constant decline
over the past year.

“We have known Mr. Culp for over 15 years and have deep respect
for his leadership and relentless focus on operating excellence
and accountability,” a team of RBC Capital Markets analysts
led by Deane Dray said in a note sent out to clients on
Tuesday. “Investor confidence in Larry Culp’s strategic vision
and operating excellence should put a floor in the stock.”

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