Questions linger about General Electric’s (GE) cash flow amid a $115 billion debt load, and a disruption of its core Power business. In October, Moody’s downgraded GE’s senior unsecured debt to Baa1, which reflected the adverse impact of Power’s deteriorating performance; Moody’s expects GE will be able to reduce leverage after selling Healthcare:
“The rating also incorporates Moody’s expectation that GE will be able to increase EBITA margins to the mid-teens level, increase FCF/debt to high single digits and reduce leverage to less than 3 times by 2020, assuming completion of the planned spin-off of GE’s Healthcare business.”
During last month’s CNBC interview, CEO Larry Culp discussed the urgency to reduce debt through asset sales. However, he never divulged what GE’s debt/EBITDA ratio was, or what it would be post-divestitures. GE bulls seem to think a Healthcare IPO will cure the company’s debt problems. I doubt that is the case. I parsed through what GE’s credit metrics would look assuming an IPO of 40% of Healthcare.
GE Credit Metrics Post-Healthchare IPO
Gordon Haskett analyst John Inch implied GE was looking to sell an initial stake of 40%. The Shock Exchange estimates GE’s $115 billion debt load at around 7.0x run-rate EBITDA (Q3 2018 annualized). After divesting 40% of Healthcare, I estimate debt/EBITDA would decline to 6.1x. Read more: