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GE IS NOT AAA

GE’s AAA rating has been called into question lately. And for good reason.

“We run the company to have a Triple-A credit rating, and we have significantly strengthened our liquidity position,” Immelt said. “We generated $16.7 billion of industrial cash flow from operations, up 5%. We ended the year with $48 billion in total cash, after paying down our commercial paper balance to $72 billion from $88 billion at the third quarter. We used $5.5 billion of our equity offering to meet our stated GE Capital debt-to-equity leverage goal of 7:1 by the end of 2008. Through today, we have been able to fund $29 billion of our $45 billion long-term debt needs for 2009.

https://www.cnbc.com/id/28800137

Like many financial firms their short-term financing capabilities have to be called into question.  Current liabilities are nearly $280B.  GE is going to be forced to sell more assets, cut their dividend or go back to the government trough to avoid a major balance sheet debacle in their finance unit.  The very fact that they might have trouble meeting their short-term liabilities at some point this year leads me to believe they are not AAA.

GE is like a great athlete who is now in his 50’s and whose health is deteriorating rapidly.  He has an irregular heartbeat and high cholesterol.  If you’re an insurance company do you pin him with  the highest rating?  Or does the slimmest doubt make him AA at best?

Update (10:33 AM):

Felix Salmon is out with a great piece coming to the same conclusion.  You can find it here.

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