General Electric (GE) is in dire straits amid shrinking cash flows and a $115 billion debt load. GE’s cost of capital is spiking as its bonds practically trade at junk levels. The company’s core Power business is currently being disrupted by alternative energy, which will hamper the company’s ability to service debt and right the ship. GE’s pension fund is underfunded by $29 billion. If the company divest assets to pare debt, GE retirees could be left holding the bag if or when the company folds:
Last week GE CEO Larry Culp confirmed an urgency to reduce GE’s $115 billion debt load through asset sales. The company also announced the sale of part of its stake in Baker Hughes (BHGE) for about $4 billion. The problem with asset sales it that GE will have to forgo future profits and cash flows. GE’s pension plan was also underfunded by about $29 billion at the end of 2017. Asset sales would also leave less profits and cash flow to cure the pension plan’s underfunded status.
GE has hundreds of thousands of current and former employees who rely on pension benefits. Who will protect them? Should the Pension Benefits Guarantee Corporation (“PBGC”) push GE to use sale proceeds from divested assets to fund pension liabilities prior to paring down debt?
If GE goes bankrupt its retirees could get a lower payout than expected. This is a known risk. Wouldn’t it behoove Tom Reeder, head of the PBGC, to negotiate on behalf of employees now than wait until GE goes belly up when the PBGC would have less leverage:
