GE Capital Back in the Game (to Win)

After providing several hundred billion in second liens and other subordinated tranches to some of the worst companies in existence over the past 5 years, a result of a complete lack of investing discipline which nearly brought parent General Electic (GE) down, GE Capital Corp. is back in the game, and this time it plans to win it. Bankrupt commodity product rollup extraordinaire Spectrum Brands (SPC) (provider of such deflation worthless products as Remington shavers and Rayovac batteries) announced it has secured a $242 million exit financing as part of its emergence into a "normal" company, with none other than perma-glutton for punishment, GE Capital.

The company went bankrupt after several Goldman led refies in 2007 straddled it with over $4 billion in debt. One can bet that Goldman syndicated any exposure faster than you can say Lllloyd: Zero Hedge would not be surprised if it was GE Capital itself that ended up being on the receiving end of the soon to be worthless paper.

But you gotta put capital to use: and those GECC principals are just so familiar with the whole zinc forward curve, and lawn manure comps that it would be a waste not to capitalize on that extensive experience. We give GE about a year before it manages to again somehow be underwater this particular investment.

Comments

[tunaman4u2:]

Good ole GE, I live near a GE plant & the workers are so high on the company... they don't even have a clue about this kind of BS

Jun 17 08:40 AM

[Mad Hedge F...:]

Don't write them off. I met Jack Welch recently, the legendary retired CEO of General Electric (GE). “Neutron” Jack gets the credit for boosting the market cap of GE from $13 billion to $400 billion in 20 years, turning it into a Wall Street darling in the process. The “hedge fund that makes light bulbs” is the last big industrial finance company standing, and when the market turns it will make a fortune, because there is no competition left. Jack is currently on the board of a private equity firm and several Internet media start ups. He gives Obama an “A” for leadership and communication, but believes his economic policies are seriously flawed. They are based on a 4% annual growth assumption for the next decade. We never managed to achieve that rate during the go go days of the eighties and nineties, let alone attempt it during a new age fraught with deleveraging and frugality. If we get only 2.5% instead, the deficit will explode from $13 trillion to $30 trillion, at which point “we will be cooked.” Who knew Jack was a closet gold bug, dollar bear, and inflation hawk? Jack thinks GM should be allowed to go bankrupt, and the current arrangement where the UAW gets the company and the bond holders get pennies on the dollar is “bizarre.” Jack was passing through San Francisco at the end of a national tour promoting his wife Suzy’s new book “10-10-10”, which is about how to create a “values driven life.” In his heyday, Jack was considered the best manager in the country. Never one to mince words, he is an absolute terror now that shareholder feelings are no longer a consideration.

Jun 17 02:10 PM

[User 432895:]

Ned from GE Capital-- A few points to clarify in your post, GE Capital's corporate lending business primarily provides senior, fully collateralized loans, as is the case here with Spectrum Brands (SPC), where we are at the top of the credit hierarchy. Our loss experience over several decades on these asset-based loans has been very low. Anyone looking for more information on our corporate lending business, please visit: gelending.com

Jun 17 04:31 PM

[31October:]

Jack Welch (I have three books about him on the shelf beside me) neither runs GE, nor has what I would call values.

My neighbor and late father told me of GE's corporate un-ethics. Jack Welch talked about blowing up bureaucracy while creating different forms. He talked about changing values: Then why is he publicising Suzy, and not his second wife Jane? Or his first wife Carolyn? Don't spend money on a book about values written by Golddigger #3.
Jack Welch turned an industrial company that needed an overhaul into an unstable hedge fund. He then attacked his successor with vile public hatred for having inherited his unstable hedge fund.

As management, I was made to study him. I found an arrogant, self-promoting, publicity-loving hypocrite. He is a terror because he is a terrible person.
If Welch were still running GE, it would have already gone bankrupt, based on his need for paper returns. He talked about vision and said the numbers would come, while chasing a big market cap at any cost.
P.s. - I don't write GE off. But I wonder how stable they really are.

Jun 17 05:04 PM

[PUNK:]

The Obama administration's proposed regulatory overhaul could force big changes at financial firms. But one large lender, GE Capital, may find them especially painful.

Though General Electric's lending arm has $613 billion in assets and provides large amounts of credit to consumers and businesses, the vast majority of its operations don't currently fall under the purview of a bank regulator. If the administration's changes become law, GE Capital, because of its size and reach, would likely be classified as a systemically important firm. Such firms would operate under a stricter regulatory regime.

For GE Capital, such an adjustment would be tricky. Perhaps the biggest potential headache for GE is a demand that regulatory supervision be extended to any systemically important firm's parent company and other subsidiaries. Under the proposed rules, these firms would also face restrictions on "nonfinancial activity." Since GE would be unlikely to countenance limits on its industrial businesses, it might become necessary to split off GE Capital.

That would bring its own challenges. GE would have to ensure that GE Capital had sufficient capital and stable funding to satisfy regulators and investors. In a recent presentation, it said its Tier 1 "common" ratio was a respectable 6.9% at the end of 2008. However, since it isn't a bank, GE Capital doesn't provide a standard firm-wide Tier 1 capital ratio, the main regulatory measure. On this yardstick, it might fall below large banks.

When it comes to funding, the new regulations envision "rigorous liquidity requirements" for systemically important firms. One of GE Capital's weaknesses going into the credit crunch was its reliance on short-term funding, underscored by its continued use of government guarantees on shorter-term debt issues.

Change is coming. Maybe not the type GE bulls can believe in.

(Peter Eavis has written for Heard on the Street since the start of 2008. Previously, he was a reporter at Fortune and TheStreet.com, where he won a Gerald Loeb award for his coverage of Fannie Mae. He can be reached at 212-416-3112 or by email at [e-mail])

(TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjo... Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.)

(END) Dow Jones Newswires

June 17, 2009 15:22 ET (19:22 GMT)

Jun 17 07:00 PM

[Moon Kil Woong:]

The sad fact is that all the bailouts did was keep the gluttonous ignoramuses that mad bad deals around to make more. In fact, all they know is get a big deal and demand some percentage for a bonus. The Street and all those around it still needs an enema.

Jun 18 09:42 AM

[Former Exec:]

As a former insider, I can tell you that Welch and Immelt always used GEC as the wild card...It's paper profits and balance sheet manipulation was always ethe buffer or the game changer the company needed at the end of each quarter. Now that those days are over and times have changed, the company if forced to stand on it's own two feet and it's clearly not the organization many thought it was.

Jun 18 09:48 AM

[doubleguns:]

Ask Chrysler and GM senior debt holders how that's working for them.


On Jun 17 04:31 PM User 432895 wrote:

> Ned from GE Capital-- A few points to clarify in your post, GE Capital's
> corporate lending business primarily provides senior, fully collateralized
> loans, as is the case here with Spectrum Brands (seekingalpha.com/symbo...),
> where we are at the top of the credit hierarchy. Our loss experience
> over several decades on these asset-based loans has been very low.
> Anyone looking for more information on our corporate lending business,
> please visit: gelending.com

Jun 18 10:53 AM

[desicon:]

Jack has been gone for a while. For the record he made money for the shareholders.

The real culprit is Immelt. I am surprised to hear no peep about him.

Jun 23 12:51 PM