GE Aims to Refinance Billions in Debt With Longer-Term Bonds - Barron's

GE has more debt relative to its size than its industrial peers.

Photograph by Mike Simons/Getty Images

General Electric continues to aggressively manage its balance sheet. The company announced a debt deal on Monday, tendering for bonds due before 2024. The move essentially replaces shorter-term debt with longer-term debt.

General Electric (ticker: GE) has roughly $35 billion in bonds due between now and 2024. The final amount of the new debt sale will depend on the market, but it could amount to tens of billions.

“With net proceeds of about $20 billion from the sale of BioPharma now in hand, we are taking swift actions to de-risk and de-lever our balance sheet and prudently manage our liquidity amid a challenging external environment,” CEO Larry Culp said in the company’s news release. “We continue to execute on our priorities, including solidifying our financial position by further reducing debt and improving our cash operations and management.

GE bonds are trading at a slight premium to face value, meaning it will take a little more money to buy the bonds back than the face value. Still, it looks to be a prudent move, given the uncertainties surrounding the Covid-19 economic downturn.

The deal will be “debt neutral,” meaning the total amount of leverage will be unchanged after completion. Only the date the debt comes due changes. Still, it is better to owe money farther down the road.

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GE stock fell 3% Monday morning as the Dow Jones Industrial Average lost 1.2%. For the year, GE shares are down 36%, worse than the comparable 17% and 14% drops of the Dow and S&P 500, respectively.

GE’s largest business is commercial aviation. That sector has been decimated by Covid-19. Thousands of planes are parked because of lack of demand and passengers going through TSA checkpoints at U.S. airports are down more than 90% year over year. Boeing (BA) shares are down 53% year to date.

Debt has also been a factor in the stock performance. GE has more debt relative to its size than its industrial peers. The biopharma sale to Danaher (DHR) will help reduce leverage and make GE’s balance sheet more comparable with its peers.

Management’s goal is to reduce debt to Ebitda, short for earnings before interest, taxes, depreciation and amortization, below 2.5 times by year-end. That goal was set before the Covid-19 pandemic hit. The company looks to be making progress toward its targeted level.

At March 31, GE had more than $47 billion in cash, up from about $36 billion reported at year-end.

Write to Al Root at allen.root@dowjones.com

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