General Electric (GE) and its demise continue to dominate the financial news cycle. GE’s $115 billion debt load amid dismal cash flows and an underfunded pension plan appears daunting. However, Peter Tchir of Academy Securities argues the market’s fears about GE’s bonds are overblown:
“GE should not see a material increase in their total cost of borrowing in 2019, despite spread widening in the secondary markets because of their debt profile,” Tchir writes, as ~$26B of the company’s $105B of debt is maturing in the next two years, mostly in 2020.
GE’s credit spreads have widened, implying bond investors believe its credit quality has deteriorated or the company is in store for another debt downgrade. Tchir implies that about $26 billion of GE’s debt load matures in two years, thus GE’s actual borrowing costs may not increase materially in 2019. Tchir believes GE could potentially fix its credit problems by 2020 when its debt is expected to be re-rated.