GE- Article of interest on PIMCO's views of GE.
By Christine Richard and Richard Bravo
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--General Electric Capital Corp.'s heavy short-term debt load drew fire from the manager of the world's largest bond fund, Pacific Investment Management Company's Bill Gross.
Gross outlined a number of concerns with GE Capital, the financing subsidiary of General Electric Co. (GE), which sold $11 billion in debt last week. He said PIMCO would not be buying any GE commercial paper in the foreseeable future.
"While GE Capital enjoys the benefit of a Aaa rating, they nonetheless have commercial paper outstanding which totals three times the size of their bank lines which back them up," Gross wrote in a column on PIMCO's website released Wednesday.
"Normally companies which borrow in the CP market are required to have bank lines at least equal to their commercial paper, but GE Capital has been allowed to accumulate $50 billion of unbacked CP because of the lack of market discipline," Gross wrote.
Gross also questioned GE Capital's contentions that it issued $11 billion in debt last week to take advantage of historically low interest rates.
"GE was sensing its vulnerability to the current mercurial opinion of analysts and managers alike, which says that any company had better clean up their act or else suffer the consequences," Gross said.
A number of companies, including Tyco International and Tyco Capital, have been shut out of the commercial paper market, where highly rated corporations obtain short term funding, since the beginning of the year.
Gross also questioned whether General Electric's ability to produce 15% annual growth for several decades could be attributed to "the brilliance of management or the diversity of their operations.".
Gross said much of GE's growth stemmed from acquisitions of more than 100 companies over the last five years using its high price-to-earnings multiple stock or near Treaury Bill yielding commercial paper.
But as GE Capital seeks to get backing for more of its commercial paper, its leverage will decline, Gross said.
"Without the benefit of this leverage afforded to them by the Street, their operations to me resemble more closely the failed conglomerates of yesteryear such as Gulf + Western and LTV."
GE Capital spokeswoman Marissa Moretti said that the company was working to increase its bank line coverage "given the current market environment and the amount of our commercial paper outstanding and expect to have this coverage in place during the second quarter."
She added that "GE always acts with integrity and any other interpretation of these comments (by Gross) are misguided."
Calls to PIMCO were not immediately returned.
GE Capital's short-term debt equaled $127 billion as of March 11, making it the largest corporate issuer of commercial paper in the world, according to a recently released assessment of GE Capital's liquidity by Moody's Investors Service.
-By Christine Richard, Dow Jones Newswires; 201-938-2189; christine.richard@dowjones.com
-By Richard A. Bravo, Dow Jones Newswires; 201 938-2087; richard.bravo@dowjones.com
(END) DOW JONES NEWS 03-20-02
02:32 PM
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