Daily Management Review

Banks are worried about GE's $ 41 bln credit line


11/27/2018


So far, the company has borrowed only $ 2 billion, Bloomberg writes.



DmitryFadeev
DmitryFadeev
According to the latest quarterly report, GE has almost $ 41 billion in credit lines, which it can use. If the company fully uses the funds provided under the two main credit lines, the resulting amount will be the largest for any American company, according to Bloomberg data. It should be noted that the company took only $ 2 billion of available loans by the end of the third quarter, thus leaving itself with the opportunity to receive additional funds.

From the company’s point of view, unused credit is a decisive support factor because analysts are concerned about the risk of a lack of funding. Chief Executive Officer Larry Culp began selling assets to raise money and issue additional shares to attract foreign investors. “The unused loan gives us a foundation, as the firm is taking steps to restructure and ultimately reduce its borrowing,” he said in an interview for CNBC this month.

From the point of view of banks, the likelihood that a borrower will be deprived of access to other sources of financing is fraught with risks, including default, if the company is unable to meet its obligations.

In the debt markets, the premium required by investors for insuring against default jumped, which signaled the possibility of further lowering the GE credit rating and higher costs for new borrowing. Last month, the two largest rating agencies lowered the rating of GE securities, dropping them three levels above the junk shares.

At the end of September, GE divided its credit lines into three categories. The main of them was the credit line of six banks for $ 19.8 billion, which expires in 2020. The second is a loan of $ 20 billion from 36 banks until 2021. The third group includes credit lines of another seven banks, which expire from February to May of the next year.

The obligations of banks related to provision of loans to GE can be a significant part of portfolios of the banks themselves. Thus, the share of Morgan Stanley in the liabilities of the first category was 6% of the portfolio of investment loans at the end of September. For Goldman Sachs Group, this share is 4%.

“I don’t care at all about the GE loan,” said Morgan Stanley CEO James Gorman in an interview with Bloomberg Television on Tuesday. - The market is aggravating the situation. GE is a legendary company, they have tremendous restructuring opportunities.”

However, for banks there are restrictions on the risks. The first credit line has conditions that will gradually reduce the amount available to the company. In March, the line will be reduced by about $ 5 billion, and in December 2019 another $ 7.5 billion. In June 2020, the credit line will be reduced to $ 5 billion.

Larry Culp said in an interview for CNBC that the company does not intend to increase its debts. “Now the main priority for us is to reduce the debt burden,” he says.

source: bloomberg.com, cnbc.com






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