Bonds of General Electric - Essay Example

General Electric Bonds of General Electric General Electric Company's finance arm sold $6 billion of debt which is considered to be the largest offering in the last year. The company has planned to issue $25 billion to $30 billion of long-term bonds. The company's $62 billion of debt is falling due in 2011 and a further $81 billion is going to be matured in 2012. (Harris, A. & Catts, T. 2011) All these bond offerings are spread to different maturities with different coupon rates attached to them. The company has offered $1.

75 billion at 2.1 percent with 3-year notes yielding 1.1 percent more than comparable treasuries and $2 billion is offered at 4.625 percent with 10-year notes. Bond Rating GE lost its AAA rating during the financial crisis in 2008. But good quarterly results have brought back the preference for GE bonds. The company currently enjoys a long-term rating of Aa2 for its bonds as declared by Moody's recently (Moody's 2011). GE Bonds Compared with Siemens and ABB When compared with similar companies such as Siemens and ABB in similar industrial groups companies, GE bonds offer slightly higher returns to the investors though the difference is nominal.

(Klee, 2011) General Electric Co. In order to explore the long-term prospects of the company, it will be worthwhile to know a bit about its past history, its products and businesses, its past performance, its operations worldwide, and its financials. GE is a diversified company having its interests in aircraft engines, business and consumer financing, power generation, and industrial products. The company was established by legendary Thomas Edison, a scientist par excellence with hundreds of patents in his fold.

The company ever since its inception displayed a true entrepreneurial spirit and spearheaded multidimensional growth and development in several fields. The company has a long heritage of research and innovation in various fields. GE Global Research lab is known for its mettle to explore new technologies in the wake of expanding the horizons of science and technology. GE’s strength can be gauged from the fact that this is the only company in the U.S. to form a part of the Dow Jones industrial index ever since 1896 when the index was first evolved.

(FactSheet, 2011) Products and Industries GE has a varied and highly diversified product list starting from Appliances, Aviation, Consumer Electronics, Health Care, Finance, Lighting, Media, Energy, Entertainment, Water Business, and many more. (FactSheet, 2011) Geographical Markets GE’s operations are spread in more than 100 countries providing employment to more than 300,000 people throughout the world. (FactSheet, 2011) Financials Second Quarter Earnings GE announced second quarter results in the current year with earnings from operations up by 18 percent or per-share earnings of $0.

34, up by 17 percent when compared with the same quarter of 2010. Though, revenues were down by 4 percent. In a press note release, the company informed that this is the fifth consecutive quarter that registered double-digit earnings growth in spite of the ongoing recession since 2008. The growth came from Healthcare, Aviation, Transportation, and GE Capital. GE'S industrial segment registered double-digit growth in the countries such as China, India, Africa, Southeast Asia, Canada, Australia, and Latin America.

GE Capital also displayed a strong performance through the second quarter. The growth in earnings of the Consumer and Commercial Lending division was 57 percent and the leasing division of the company registered fabulous 100 percent growth. (2Q Highlights 2011) Long-Term Prospects If the recent results of a few quarters are any indication, the long-term prospects of the company certainly look promising. The company’s innovative culture and continued search for excellence has paid off even in difficult times.

GE is an established multinational company with manufacturing and marketing operations in several countries. That provides enough leverage to the company during difficult times in some of the countries as is the case currently. From a fundamental viewpoint, GE is on a solid platform and looking forward to strong long-term growth across various divisions of the company. GE Credit Ratings Short-term and long-term debts of GE are rated by the two leading rating agencies such as Moody’s and Standard & Poor’s and the same are tabulated as per the following.

Company S&P Rating Moody’s Rating Short Term Long Term Short Term Long Term General Electric Company A-1+ AA+ P-1 Aa2 General Electric Capital Corporation A-1+ AA+ P-1 Aa2 Source: http://www.ge.com/pdf/investors/investing/fixed_income/ge_LongTermDebt2Q11.pdf Current Debt Scenario and Debt Magnitude GE has completed $20 billion of long term debt issuance (unsecured) in the year 2011 so far in 9 currencies, which signifies a downward trend for the last two years. Out of the total debt composition, long-term debt with a maturity period of less than a year constituted $73 billion.

As of the second quarter of 2011, total debt stood at 463 billion. Out of which, long-term debt (non-guaranteed) constitutes $281 billion. (Long Term Debt Overview 2011) Cost of Fund or Interest Rate All along the year option-adjusted spread has moved between 120 and 140 bps; however lately it has crossed 140 bps. When compared with other finance companies and banking industries, the cost of funds is lower and more competitive. (Long Term Debt Overview 2011)