General Electric to focus on liquidity, debt reduction during virus

By Devika Patel

Knoxville, Tenn., April 29 – General Electric Co. plans to focus on liquidity and paying down debt to help the company through the downturn it is seeing as a result of the Covid-19 pandemic.

“Sound liquidity is crucial and solidifying our balance sheet remains a key focus,” chairman and chief executive officer H. Lawrence Culp, Jr. said on the company’s first quarter ended March 31 earnings conference call on Wednesday.

“We’ve recently taken actions to enhance and expand our liquidity and pay down debt,” senior vice president and chief financial officer Carolina D. Happe said on the call.

The company negotiated a new revolver in April as part of a planned refinancing of its prior revolving credit facility.

“On April 17, GE entered into a three-year $15 billion syndicated revolving credit facility,” Happe said.

“This was a planned refinancing of GE’s prior $20 billion syndicated revolving credit facility,” she said.

The company also sold its BioPharma business to Danaher on March 31 for about $20 billion and also sold $6 billion of new debt, using the proceeds to pay down old debt.

“Following the sale of BioPharma, we also improved our liquidity profile in April,” Happe said.

“We reduced our near-term debt maturities by issuing $6 billion in GE debt in April and subsequently tendering for $4.2 billion of debt.

“We plan to use the remaining $1.8 billion of proceeds for further debt reduction,” Happe said.

The company has no debt maturing until 2022.

“Following this, GE Industrial has no debt maturities in 2021, $1.9 billion of maturities in 2022 and $900 million in 2023,” Happe said.

“We continue to hold a liquidity balance covering 12 months of GE debt maturities,” Happe said.

Happe said that the company has reduced debt by about $7 billion at GE Industrial and by $4 billion at GE Capital.

“So, we reduced external debt by $10 billion year to date, including $4.7 billion of maturities in the quarter and an additional $5.4 billion of 2020 maturities tendered in April,” Happe said.

The company hopes to reduce leverage at GE Industrial.

“Our financial policy goals remain: maintaining a high cash balance, achieving less than 2.5x net debt-to-EBITDA at GE Industrial, and less than 4x debt-to-equity at GE Capital, a credit rating in the single-A range and reinstating a dividend in line with peers over time,” Happe said.

“We remain committed to achieving our leverage targets, but we now expect to achieve those targets over a longer period than previously announced due to the impact of Covid-19,” she said.

The Covid-19 pandemic has had a material impact on the company.

“The impact from Covid-19 materially challenged our first-quarter results, especially in Aviation, where we saw a dramatic decline in commercial aerospace as the virus spread globally in March,” Culp stated in a Wednesday press release.

“We are targeting more than $2 billion in operational cost out and $3 billion of cash preservation to mitigate the financial impact and we executed a series of actions to de-risk and de-lever our balance sheet amid a challenging environment.

“While there are many unknowns, there will be another side – planes will fly again, health care will normalize and modernize, and the world still needs more efficient, resilient energy,” Culp stated.

Culp stated that Covid-19 factors have negatively impacted GE CFOA and GE Industrial free cash flow by approximately $1 billion and negatively impacted GE Industrial profit by about $800 million and GE Capital earnings by approximately $100 million. GE Industrial profit was also negatively impacted by $700 million.

“The second quarter will be the first full quarter with pressure from Covid-19 and GE expects that its financial results will decline sequentially,” Culp stated in the release.

“Given the evolving nature of the Covid-19 pandemic, at this time, GE cannot forecast with reasonable accuracy the full duration, magnitude and pace of recovery across our end markets, operations and supply chains,” Culp stated.

As previously reported, on April 13, General Electric priced $6 billion of senior notes (Baa1/BBB+/BBB) in four parts.

A $1 billion tranche of 3.45% seven-year notes priced at 99.845 to yield 3.475%, or a spread of Treasuries plus 285 basis points.

The company sold $1.25 billion of 3.625% 10-year notes at 99.841 to yield 3.644% and with a 290 bps over Treasuries spread.

A $1.5 billion offering of 4.25% 20-year notes came at 99.718 to yield 4.271%, or a spread of 290 bps over Treasuries.

Also, $2.25 billion of 4.35% 30-year notes priced at 99.65 to yield 4.371% and with a Treasuries plus 300 bps spread.

All four tranches were initially talked to price in the Treasuries plus 375 bps area.

BofA Securities, Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were the active bookrunners. BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. were passive lead managers.

Proceeds were earmarked to fund the tender offer for General Electric’s $3 billion of 2.7% notes due 2022, €1.8 billion of 0.375% notes due 2022, €1.2 billion of 1.25% notes due 2023, $750 million of 3.375% notes due 2024 and €650 million of floating-rate notes due 2020.

Then, on April 17, the company entered into a senior unsecured back-up revolving syndicated credit facility due April 17, 2023 at an initial commitment amount of $15 billion.

JPMorgan Chase Bank, NA, BofA Securities, Inc., Citibank, NA, BNP Paribas Securities Corp., Goldman Sachs Bank USA and Morgan Stanley Senior Funding, Inc. are joint bookrunners and joint lead arrangers. BofA and Citi are the syndication agents and BNP Paribas Securities Corp., Goldman Sachs Bank USA and Morgan Stanley Senior Funding Inc. were documentation agents.

The new facility refinanced GE’s prior $20 billion back-up revolving syndicated credit facility that was scheduled to mature in May 2021. The previous facility was terminated.

The closing also terminated GE’s revolving syndicated credit facility that was scheduled to mature in December, which had an aggregate revolving commitment amount of about $4 billion following the sale of the BioPharma business within the company’s health care segment.

Proceeds from the new loan, which was undrawn at close, may be used for general corporate purposes.

GE is industrial manufacturer with headquarters in Boston.

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