General Electric Co. (NYSE:GE) is working with banks to replace a current loan agreement with a package that would be a lower amount, and shorter maturity, according to a Reuters report. It said the company currently has $20 billion in revolving loans set to expire in 2021.
GE is seeking to replace that with a $15 billion package and began discussions with the banks prior to the coronavirus pandemic impacts adding uncertainty to financial markets. The report cited a GE source saying the lower loan size better reflected the company's needs now that it has divested some assets. Earlier this week, GE announced it closed on the sale of its GE BioPharma unit to Danaher, netting the company approximately $20 billion in net proceeds.
While GE believes the smaller size suits its needs, the current environment is steering banks into less risky agreements, such as those involving shorter durations. It was reported that GE was initially seeking a package of five-year and three-year loans. However, the longer maturity option wasn't available because of current instability in the market.
The report quoted a banking source as saying "the loan market wants to go shorter because banks are very uncomfortable with their own cost of liquidity." Specific to GE, another source reportedly pointed to higher risk because of its exposure to the energy and transportation sectors, both hit hard in the current pandemic crisis.
With the current risks, in addition to the shorter duration loan, GE will also reportedly be paying higher rates with the new package compared to the existing loans.