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Cost to Insure GE Debt Highest Since 2018

By Howard Smith - Mar 12, 2020 at 3:54PM

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GE credit default swap pricing rises with risks associated with coronavirus.

Pricing on General Electric Co. (GE -0.74%) credit default swaps has more than doubled in the last week, Reuters reports. Pricing of the derivative reflects perceived ability of the company to repay its debt. 

The increase in risk is likely tied to the coronavirus outbreak, and associated declines in interest rates, economic growth and impact on air travel. 

jet engine

Image source: Getty Images.

Not altering the plan

On March 4, 2020, GE held its 2020 investor outlook, where Chairman and CEO Larry Culp discussed the company's financial position. Debt reduction goals were detailed in that presentation, and Reuters reports that a GE spokeswoman has said the most recent COVID-19 situation has not led to a revision to those plans.

The presentation called for a 2020 reduction in leverage of almost half-as measured by non-gaap net debt/EBITDA-compared to 2018 levels. The company noted, however, that the near-term impact of COVID-19 was included in its outlook, but not beyond the first quarter of 2020. It named its healthcare and power and renewable businesses as having the most demand impact. The jump in credit default swap pricing likely reflects investor concerns about the company's exposure going forward.

Analysts say it may depend on the duration of the coronavirus impacts. Eric Ause, a GE credit analyst at Fitch Ratings, commented, "the key risk we see from the coronavirus issues is the impact on the economy and its effect on GE's cash flow and margins." 

As of the end of 2019, GE's total debt amounted to $91 billion. 

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