General Electric Company’s (GE) recent $3 billion debt issue was assigned a rating of Aa3 by leading credit rating agency Moody's. The debt issue comprised $750 million and $2.25 billion of senior unsecured bonds maturing in 2024 and 2044, respectively. The 10-year notes were priced to yield 3.487%, while the 30-year bonds were priced to yield 4.566%.
The Aa3 senior unsecured debt rating reflects General Electric’s strong competitive position in industrial businesses across an extensive range of products and services. The stable rating outlook implies Moody's assumption that General Electric will continue to generate robust, resilient levels of profitability and free cash flow across business cycles.
Capitalizing on a lucrative low-interest rate environment, General Electric’s opportunistic move was lauded by markets, as the order book for the long-dated bond issue was oversubscribed within 45 minutes for $11 billion worth of orders. The demand might have been the consequence of a rare opportunity for investors to buy debt of the parent company, as most of General Electric’s debt is issued by its financial arm GE Capital. To enumerate, GE Capital accounts for $210 billion of the $222 billion worth of long-term debt that appears on General Electric's balance sheet as of Dec 31, 2013.
Moody’s expects the net proceeds to be utilized for core industrial operations, continuing General Electric’s recent trend of complementing organic investments with opportunistic acquisitions. The bond issue will also provide General Electric the requisite wherewithal for dividends and share repurchases.
The Federal Reserve’s low-interest policy continues to be a key driving force for the U.S. bond market, as evidenced by a whopping $1.51 trillion of corporate debt offerings in 2013, according to a Bloomberg report. Discounting the tapering announcements, the corporate bond market looks set to continue its momentum as more corporates rake in cheap finance via debt offerings.
General Electric currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry that look promising include Federal Signal Corp. (FSS), Noble Group Ltd. (NOBGY) and Marubeni Corp. (MARUY). While Federal Signal and Noble Group each sport a Zacks Rank #1 (Strong Buy), Marubeni carries a Zacks Rank #2 (Buy).
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