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General Electric Company Message Board

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  • fuzzhead72 fuzzhead72 Feb 20, 2009 5:47 PM Flag

    Why is GE 547 Billion in debt?

    What I'm asking, I guess, is this: is the debt all on paper, or real?

    Is a lot of the debt good debt, where they have used it to invest in something that is/will pay back dividends, or give a return on investment?

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    • I'm not quite sure you understand the corporate capital structure. Many companies issue bonds (aka debt) to raise money. Each bond pays a coupon and the goal is for said company to use the proceeds to earn more than the coupon.

      For finance companies like GECC, they make tons of loans that pay an interest rate. Money is made if the interest rate is higher than their cost of funds (from the issuance of bonds). Of course there are more variables like defaults, etc.

      • 1 Reply to investor1030
      • Just some numbers from Bloomberg of random companies:

        Amount of debt outstanding (doesn't include CP and other forms of debt, this is just from the capital markets):

        GE: $362bn
        C: $240bn
        BAC: $393bn
        AT&T: $72bn
        CAT: $27bn
        F: $54bn
        GM: $14bn

        The most important thing, especially in these days, is a companies ability to refinance debt. GE has 100% access to raise funds in part due to the FDIC-guarantee. They were also able to issue a $4bn 30-yr bond in Jan without govt guarantee at a coupon of 6.875% which most companies would drool over. This is much different for a company like Ford who hasn't been able to access the debt markets since late '07.

        In conclusion, I'm not worried at all about GE's amount of debt.

    • They borrowed the money and then loaned the money at a higher rate than what they paid.

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