GE Again

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

My early warnings on GE isa matter of public record.
On March 18, I again posted:

GECC on March 13 2002 launched a multi-tranche dollar deal that was
almost doubled in size from $6bn to $11bn, making it the largest-ever
dollar-denominated corporate bond issue.  Officially the bond sale was
explained as following the current trend of companies  with large
borrowing needs such as GECC locking in favourable funding costs while
interest rates are low.   The deal comprises $4bn of three-year
floating-rate notes; $2bn of five-year fixed-rate bonds; and $5bn of
30-year fixed-rate bonds.   The Triple A rated bonds were priced to
yield 125 basis points over Libor, 80bp  over Treasuries and 109bp over
Treasuries respectively. JP Morgan, Lehman Brothers and Salomon Smith
Barney were bookrunners for
the global deal. The previous record-holder in the dollar corporate bond
market  was a $10.1bn deal from US tel ecommunications company WorldCom
last May.

On March 18, Bloomberg reports that GECC is bowing to demands from
Moody's Investors Service that the biggest seller of commercial paper
reduce its reliance on short-term debt securities.

The financing arm of General Electric Co., the world's largest company,
is seeking bigger lending commitments from banks and replacing some of
its $100 billion in debt that matures in less than nine months with
bonds. GE Capital is asking banks to raise its borrowing capacity to $50
billion from $33 billion.

Moody's lowered a record 93 commercial paper ratings last year as the
economy slowed, causing corporate defaults to increase to their highest
in a decade. One area of concern for the analysts is the amount of bank
credit available to repay commercial paper.

While many companies have credit lines equivalent to the amount of
commercial paper they sell, some of the biggest issuers do not. GE
Capital, for example, has loan commitments backing 33 percent of its
short-term debt. American Express Co. has commitments that cover 56
percent of its commercial paper.
Coca-Cola Co. supports about 85 percent of its debt with bank
agreements, according to Standard & Poor's.

Commercial paper is attractive because it is flexible -- it can be sold
immediately -- and cheap. Top-rated commercial paper issuers pay about 9

basis points below benchmark lending rates to borrow for one month. By
contrast, loans cost about 20 basis points more than benchmark rates and

bonds more than that. Loans
and bonds also tend to require advance notice to be arranged.

Anticipating reduced demand, some companies have pared the short-term
debt they sell in favor of more bonds. Companies have sold $107 billion
of investment-grade bonds this year, up from $88 billion during the same
period in 2001. The amount of unsecured commercial paper outstanding has
fallen by a third to
$672 billion during the past 12 months.

GE Capital, which has reduced its commercial paper outstanding from $117
billion at the beginning of the year, plans to continue to reduce
short-term debt, said spokesman Stack. It took one step in that
direction last week when it sold $11 billion of long-term bonds, some of
which will be used to reduce its outstanding commercial paper.

As part of last week's sale, GE Capital sold 30-year bonds with a coupon
of 6.75 percent. The company usually swaps some or all of those
fixed-rate payments for floating-rate obligations. Last year, GE Capital

paid on average 3.23 percent for its floating-rate, long-term debt, 70
basis points more than on its commercial paper, according to a company
filing.

The bottom line of all this is that the funding cost of GECC will go up,
which will hit GECC profit which constitutes 60% of its parent's profit.
This in turn will hit GE share prices which in turn will force rating
agnecies to further pressure GE to shift from low cost commercial papers
to to bonds or bank laons, which will further reduce profit which will
further increase rating pressure.........

Today, PIM (Pacific Investment Management), the world's largest bond
fund, having dumped $1 billion in GE commercial paper, publicly
criticised GE for carrying too much debt and not dealing honestly with
investors.  GE announced it might sell as much as $50 billion in bonds
only days after investors bought $11 million of new bond in the biggest
US sale in history.  PIM director Bill Gross said that disputes GE's
contention that the new boond sales were designed to capture low rates,
but because of troubles in its commercial paper market.  If GE shortterm
rate rises because of poor credit rating, the engine that drives GE
earnings would stall out.  Gross dismissed GE eraning growth as being
from brilliant management, Jack Welch books not withstanding, but from
financial manipulation, seeling debt at cheap rate and using stock for
acquisition.

The cat is now out of the bag.  GE is a big sell issue in the market
today.

Henry C.K. Liu