The Atlanta Journal-Constitution
Cashing out finance unit may buy GE confidence
General Electric on quest to restore its long-lost AAA rating.
Before the global financial crisis, General Electric and its finance unit were Aaa-rated darlings of corporate bond investors, who gobbled up tens of billions of dollars in debt offerings each year. That allowed the conglomerate to access cheap capital and build a financing behemoth that rivaled some of Wall Street’s largest banks.
With the $30 billion sale of its jet-leasing business this week, GE is shaking off one of the last remaining vestiges of GE Capital, folding what’s left into its broader corporate balance sheet and marking an inauspicious end for what was once one of the biggest players in the investment-grade bond universe.
At their peak in 2006, GE and GE Capital issued over $60 billion of bonds, more than even Wall Street mainstays like Bank of America and Jpmorgan Chase, according to data compiled by Bloomberg.
When the U.S. housing market collapsed in 2008 and pushed Lehman Brothers Holdings Inc. into bankruptcy, GE’S standing quickly unraveled as worries emerged that it too would be toppled. The company lost its AAA rating in 2009, and tougher capital rules for large financial institutions suddenly became an albatross — along with its massively underfunded pension — that began a slow descent to the edge of junk.
GE is still far from out of the woods, market watchers say, and S&P Global Ratings put the firm’s BBB+ rating on watch for a downgrade Wednesday. But analysts also note the deal should ultimately help improve the risk outlook for a company that’s gone to great lengths to shed the remnants of the financial giant that nearly brought it down.
“It reminds me how radically the corporate landscape can change over time,” said Gregory Staples, head of fixed income for DWS North America. “GE has matured more bonds than most companies will ever issue.”
Postmaster General Louis Dejoy asked congressional appropriators Thursday for more money to support his still-unreleased strategic plan for the nation’s mail agency and tried to reset expectations for slower but more consistent service.
Testifying before the House Appropriations subcommittee on financial service, Dejoy said the U.S. Postal Service needs to “recast that expectation of what it is that we’re able to do” to stem financial losses. Lawmakers had previously questioned Dejoy on a Washington Post report that he would stop flying first-class mail cross-country and planned to eliminate a speedier category of first-class mail to cut costs and help the agency make delivery windows.
Dejoy confirmed those plans Thursday and said they were a necessary evolution for an agency struggling to right its balance sheet and also define its core services in an era of less paper and more packages. “It does involve a service standard change,” he said of his plan. “We cannot go to California from New York in three days without going on planes, and we don’t own planes.”
Residential and businesses customers have been complaining about late and inconsistent mail service for months. Credit card companies and utilities have noticed an uptick in consumer calls about late-arriving bills and the resulting late fees and interest penalties. Mail-order pharmacies have instructed patients to put in their refill orders earlier to allow for the possibility of delivery delays.
Meanwhile, large-scale mailers, like banks and insurance companies, are urging clients to switch to paperless communication, a shift that would further undercut the Postal Service’s biggest profit stream.
The hearing, during which Dejoy apologized three times for mail delays and past fiery exchanges before other congressional panels, marked his second House hearing in three weeks. On Feb. 24, he instructed members of the House Oversight and Reform Committee to “get used to me” during opening statements. Shortly after the hearing ended, President Joe Biden announced his three nominees to the Postal Service’s governing board — enough to potentially give Democrats the votes for Dejoy’s ouster.
On Thursday, the postmaster general struck a more conciliatory tone and repeatedly asked members for more resources, couched in what he described as a shared goal to improve mail delivery. He also said the agency would push the Biden administration to credit the Postal Service with years of pension overpayments, which could take $100 billion worth of obligations off its balance sheet.
“I understand all your concerns and, look, I can assure you we’re trying to address them,” Dejoy told Rep. Norma Torres, D-calif., after she asked about working conditions in local post offices, “but pulling money away from us is not is really not going to help.”
Dejoy asked Congress to relax restrictions on the use of $7.4 billion in emergency pandemic funds that could be used to finance investments in his plan for new vehicles and package-sorting machines. Rep. Jared Huffman on Monday introduced a separate bill to provide the Postal Service $6 billion for its vehicle fleet, provided 75% of the trucks were electric.