Jan. 28 (Bloomberg) -- Jeffrey Immelt will know within three months whether his eventual mark on General Electric Co. can include the claim he led it through the deepest economic crisis in a generation with its dividend and Aaa credit rating intact.

“This will be a legacy thing,” said Bill Batcheller, who co-manages $700 million in assets, including GE shares, at Butler Wick & Co. in Youngstown, Ohio. “He’s doing what he can do to protect both of these items. Immelt’s been trying. He can’t control the economy.”

Moody’s Investors Service yesterday said it’s evaluating whether to lower the long-term debt rating for GE and GE Capital, a review that takes about 90 days. Immelt, who took over as chief executive officer in September 2001, is staking his reputation and GE’s on squeezing enough profit from jet engines, power equipment and finance to justify the Aaa and still pay $13.4 billion in dividends to shareholders this year.

Investors may not share his faith. GE fell 56 percent in 2008, erasing $204 billion in market value, as the company twice missed Immelt’s profit targets. The stock closed at the lowest price since 1996 on Jan. 23, the day he reported lower fourth- quarter profit and repeated his dividend-and-rating mantra. GE last week outlined worsening conditions at parts of GE Capital while leaving the unit’s $5 billion profit goal unchanged since a Dec. 16 shareholder meeting.

“At this point GE’s credibility certainly has to be coming under closer scrutiny,” said Nick Heymann, an analyst at Sterne Agee & Leach Inc. in New York who has covered GE for more than 25 years. He has a “sell” rating on the stock. “It was unnerving to investors that just between the middle of December and when they reported results that you would have such large adjustments in the 2009 operating framework.”

Cash for Dividends

GE said in December it may generate as much as $16 billion in cash this year after capital expenses. Most would come from the sale of goods like jet engines and power turbines, plus $500 million from a reduced payment GE Capital makes to the parent company, and about $2 billion from other sources. That would be more than enough to pay the $1.24-a-share dividend.

Moody’s is examining whether that kind of cash generation is sustainable over years and whether keeping the dividend saps cash that GE should put to other uses. Specifically, Moody’s wants GE Capital to earn enough to restore a larger payment to the parent company in 2010. If that doesn’t look like it will happen, Moody’s says it can’t justify the top-level Aaa.

Moody’s Review

“One of the elements we’re considering in the review is in terms of the stress that the external dividend puts on the industrial cash flow,” Richard Lane, the Moody’s analyst overseeing GE, said in an interview. That “is not the pre- eminent issue, but it is an important issue in the ratings.”

The ratings company is also examining so-called “progress payments,” or payments made as large equipment such as gas turbines for power plants are being constructed as the global economy slows. Any decline, Moody’s said, could be tempered by “working capital reductions.”

Under GE’s business model, the finance unit gives the parent a percentage of profit that’s redistributed to all of GE’s businesses. In September, GE allowed GE Capital to cut its contribution to 10 percent of the unit’s profit from 40 percent.

Moody’s is reviewing long-term debt at GE and GE Capital that is not backed by the Federal Deposit Insurance Corp. The service affirmed GE’s top commercial paper ratings.

GE’s Objective

GE said in a statement it will “work constructively with Moody’s on its review” over the next few months. “Our objective is to maintain our Triple-A rating, but we do not anticipate any major operational impacts should that change.”

Immelt, 52, says he and GE’s board consider paying the dividend a good way to return value to shareholders. More than 40 percent of GE’s holders of its 10.5 billion outstanding shares are individual investors. “It has just been the judgment that this has been the most investor-friendly use of this capital,” the chief executive said last week.

While Immelt says he would like to protect both the rating and the dividend, bonds have traded the past six years as though GE was rated below Aaa, according to Moody’s implied ratings. The bonds imply GE should be ranked five steps lower at A2.

GE’s 5.25 percent notes due in 2017 fell 0.54 cent to 97.5 cents on the dollar to yield 5.61 percent at 3:39 p.m. in New York, according to Trace, the Financial Industry Regulatory Authority’s bond-pricing service.

GE’s Bonds

These days “it’s not as essential to have the triple A to get your funding,” said Richard Hofmann, who follows financial companies for CreditSights Inc. in New York. “It is an important psychological level, and also it could regain its importance” once credit markets return to normal.

GE rose 44 cents to $13.50 at 4:15 p.m. in New York Stock Exchange composite trading. U.S. stocks extended a global rally as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments.

GE has raised 64 percent of the $45 billion in long-term debt it plans to issue this year. About $24.5 billion of that is insured by the FDIC. About 83 percent of Aaa companies put on a review for downgrade are cut within a year, according to Moody’s.

Moody’s also gives an Aaa stamp to Automatic Data Processing Inc., Exxon Mobil Corp., Johnson & Johnson, Microsoft Corp. and Berkshire Hathaway Inc. The only non-financial, non-government borrower Moody’s rates Aaa outside the U.S. is Toyota Motor Corp.

Decision Time

Immelt is reaching the point where he has to make a decision between losing either the rating or the dividend, Jeffrey Sprague, a Citigroup Inc. analyst in Stamford, Connecticut, said in a note to clients after yesterday’s announcement.

Sprague said that while he would prefer that Immelt reduce the dividend rather than allow the Aaa to slip, it’s important that the matter be resolved. “While a cut of the dividend and/or rating may create near-term pressures, ultimately removing these overhangs should be good for the stock,” Sprague wrote.

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net.

Last Updated: January 28, 2009 17:00 EST