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We've become used to it. Almost everyday we reach levels not seen in decades. Whether it's employment statistics, market data or downgrading of the outlook on General Electric Co. (NYSE: GE) -- it is a first in 52 years.On Thursday, two days after GE had provided outlook for 2008 and 2009, S&P credit rating agency lowered the outlook for GE and GE Capital from stable to negative. While it affirmed their Triple-A ratings, it also said that there is a one-in-three chance they could lose them because of concerns about cash flow and funding for GE Capital as global conditions worsen. Moody's credit rating agency kept its outlook on GE as stable.
GE had already added $5 billion in funds to the finance unit to help meet the new leverage ratio this month. S&P is concerned it may need to add more. Does GE have the cash? Well, GE isn't planning to cut the $1.24 annual dividend, which is estimated to cost around $13 billion. As it stands now, with the current new outlook the dividend would consume most of GE's free cash flow next year. So while execs would like to keep the dividend, there is more cash to play with. Somewhat worrisome, though, is the fact that GE will no longer provide quarterly guidance.
While no doubt GE isn't in the shape it was before the financial crisis hit, and certainly the economic downturn is deep and will further hurt GE's operations in general and GE Capital's in particular, one has to wonder -- just a little bit -- about credit agencies that so miserably failed to assess mortgage-backed securities and other instruments. Are they now being too conservative or keeping with their old ways?
Regardless, all that was changed is the outlook, not the rating yet, and while obviously important to note and to keep an eye on, this isn't by far the worst news companies have received this year. In this crazy market, though, it took the stock down 8% on Thursday and added to investors' foul mood on the Street yesterday. Today, it is recovering, up over 3% as it was probably oversold and on broader market rally.
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