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Why Investors Are Spooked by GE's Giant Debt Load

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GE Investors Demand Details on CEO's Turnaround Plan

General Electric Co., one of the most storied companies in U.S. history, has had a bumpy ride with its turnaround. The latest challenge for the new chief executive is to calm fears in the credit market after ratings were cut on struggles at the company’s power unit, whose weakness has been putting significant pressure on cash flows. It’s a crisis that’s being watched closely by the broader corporate bond market, where concerns about the build up of debt over the last few years are mounting.

Nervousness around GE’s debt has been growing since October, when S&P Global Ratings downgraded its credit rating two notches to BBB+, just three steps above junk. By the start of November, Moody’s Investors Service and Fitch Ratings had followed suit, sparking a tumble in the price of the company’s bonds that pushed several through all-time lows. New chief executive Larry Culp helped trigger the latest sell-off. In a rare interview, he sought to calm investors by expressing a “sense of urgency” in cutting debt and selling assets. This backfired, leading to a 10 percent price drop in the value of its shares on Nov. 12, similar moves in the company’s bonds, and a sharp rise in the price of derivatives that protect against losses in the case of a default. However, a sped up $4 billion plan to reduce its stake in subsidiary Baker Hughes on Nov. 13 helped reverse some of the latest falls of the company’s debt and equity.