Amid the corporate credit meltdowns of recent months even the most highly rated of frequent issuers have been forced to defend their funding strategies and the composition of their balance sheets. GE Capital is a prime example. The financial services company has always been proud of its triple-A rating but it has been less keen in the past to demonstrate to the market and the rating agencies why it should still hang on to it.
Last year it came under attack, notably from key debt investors such as Pimco managing director Bill Gross, about its over-reliance on short-term funding to accumulate acquisitions and subsequently bolster annual earnings growth.
In March 2002, Gross said that with its $11 billion bond offering last year, GE Capital was "sensing its vulnerability to the current mercurial opinion of analysts and managers alike". The concern was that GE Capital had $50 billion of commercial paper funding that wasn't backed by bank lines.
The rating agencies began to question its leverage levels and funding mix. "They got away with the 'we're so smart, we're so successful line' for many years," says David Hendler, senior analyst, financial services, at credit research company CreditSights.