Morning Commentary: General Electric widens, GE Capital bonds tighten on asset sale

By Cristal Cody

Tupelo, Miss., April 10 – General Electric Co.’s announcement early Friday that it will sell most of General Electric Capital Corp.’s assets over the next two years sent the parent company’s bonds wider and the subsidiary’s tighter in secondary trading.

GE’s bonds traded 2 basis points to 3 bps wider, while GE Capital’s bonds moved 10 bps to 15 bps tighter over the morning, a trader said.

Under the plan, General Electric expects that by 2018 more than 90% of its earnings will be generated by its industrial businesses, up from 58% in 2014.

GE said that it will retain its vertical financing business, GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance, which directly relate to its core industrial businesses.

GE Capital “has been an important part of the history of GE. However, the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,” the company said in the announcement.

General Electric said it would sell GE Capital’s real estate assets for about $26.5 billion. The bulk of the assets will be sold to funds managed by Blackstone.

The company said there is potential to return more than $90 billion to investors through 2018 in dividends, buybacks and other transactions. General Electric said it expects about $35 billion in dividends from GE Capital from the plan.

GE’s board of directors has authorized a new repurchase program of up to $50 billion of common stock, and GE expects to reduce its share count to 8 billion to 8.5 billion by 2018.

The three-month Libor yield was flat at 27 bps early Friday.

The Markit CDX North American Investment Grade series 23 index was unchanged at a spread of 61 bps.

GE Capital firms

General Electric Capital’s 3.45% notes due 2024 tightened to 72 bps bid, 66 bps offered in early trading on Friday from the 78 bps area on Thursday, a trader said.

The company’s bonds continued to tighten over the morning.

“Hearing now GECC is anywhere from 10-15 [bps] tighter,” the trader said. “GE Co. 2-3 [bps] wider.”

GE Capital sold $1 billion of the notes on May 12, 2014 (A1/AA+/) at a spread of Treasuries plus 85 bps.

The financial products and services subsidiary of General Electric Co. is based in Norwalk, Conn.

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