When it rains, as they say, it pours. This week, ratings agency Moody’s piled on the recent General Electric Company (NYSE:GE) pity party, slashing its credit rating on the industrial giant amid what it called “extreme deterioration” in GE’s energy unit.
CNBC has more details on the move, which follows a string of recent bad news for the former powerhouse:
The ratings agency knocked the senor unsecured bonds down to A2 from A1, which is still investment-grade debt but is now six steps away from Moody’s highest rating. A2 is considered upper medium grade.
The move comes the same week that GE rocked investors with news that it was slashing its dividend in half and making a multitude of other changes at the 125-year-old industrial conglomerate. GE shares were rocked on the news and are down nearly 10 percent on the week.
Moody’s indicated that it’s unlikely GE makes the changes anytime soon that will justify the former rating on its bonds.
The credit agency lambasted GE’s recent moves of taking $25 billion from asset sales over the past two years and plowing the funds into share buybacks. It also panned GE’s usage of the funds to support its unsustainable dividend payout, along with the fact it took out $10 billion in debt to fund acquisitions. Ouch.
Rene Lipsch, Moody’s senior credit officer, said in a statement that “The downgrades reflect the severe deterioration in the financial performance of GE’s Power segment that will last through at least 2019. Along with the challenges in the Oil & Gas business posed by continued weakness in the global oil field services industry and the downturn in the North American market for freight locomotives, GE has to contend with weak earnings and cash flows in several segments that represent in aggregate about 50% of expected revenues in 2017.”
General Electric Company shares were trading at $18.41 per share on Friday morning, up $0.16 (+0.88%). Year-to-date, GE has declined -40.19%, versus a 17.18% rise in the benchmark S&P 500 index during the same period.