The End of an Era

Abstract

The GE announcement should be a positive credit event for creditors and bondholders. The divestiture is an event that has been seven years in the making and it will result in a significant reduction of commercial paper outstanding, especially for the direct issue CP market. Short-term corporate bond supply also will suffer. As higher quality issuers exit, managing liquidity in cash portfolios becomes more challenging.

Introduction

For decades, General Electric (GE) has been a household name for most of us, not just because of the many GE products that we use every day, but also for the steady and widespread level of corporate borrowing that has been found in corporate treasury portfolios via money market funds, separately managed accounts and other liquidity vehicles. General Electric is a hybrid corporate borrower that straddles the industrial and finance sectors, and its recent decision to exit most of its finance business signifies the end of an era with meaningful implications for the short-term debt market.
Given GE’s status as a widely-held, highly rated, non-financial issuer, we’d like to update our readers on the company’s strategic plans and the likely impact of those on its creditworthiness. More importantly, we also like to discuss the implications for capital markets, particularly with respect to supply and liquidity issues in the short-term corporate debt space.
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