What good is an AAA rating...

[GRG55]

...if you have to pay 10% and dilute the shzt out of your existing shareholders to raise capital? :p

Immelt has to be praying they get that bailout package passed pronto...:rolleyes:

GE Raises $15 Billion; Buffett Gets Preferred Stake

By Rachel Layne and Erik Holm
Oct. 1 (Bloomberg) -- General Electric Co. got a $3 billion investment from Warren Buffett and said it will sell $12 billion in common stock, gathering more cash to fund operations amid the worst U.S. financial crisis since the Great Depression.

Buffett's Berkshire Hathaway Inc. will buy $3 billion in preferred shares that pay an annual 10 percent dividend and are callable after three years at a 10 percent premium, Fairfield, Connecticut-based GE said today in a statement.

The 78-year-old investor also gets warrants to buy $3 billion of common stock with a strike price of $22.25 a share for five years...

...``It's a screaming good deal'' for Buffett, said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which holds Berkshire and GE shares. Carret Zane added to its GE holdings today before the Buffett deal was announced. ``GE is doing this in part to show that they can. They're strong when others are weak.'' [Spoken like someone who just got diluted ;) ]...

...GE and Immelt, 52, told investors as recently as Sept. 25 there was no need for outside capital, including selling a large equity stake to an outside entity. Immelt that day reduced his annual profit forecast for the second time this year. He also suspended a $15 billion buyback program, shifting capital to protect GE's dividend and AAA credit rating as volatility in credit markets reduced profit at its finance arm, GE Capital...

LOL...Looks like an AAA corporate credit rating isn't much better than an AAA CDO tranche rating...

[metalman]

Re: What good is an AAA bond rating...

...if you have to pay 10% and dilute the shzt out of your existing shareholders to raise capital? :p

Immelt has to be praying they get that bailout package passed pronto...:rolleyes:

GE Raises $15 Billion; Buffett Gets Preferred Stake

By Rachel Layne and Erik Holm
Oct. 1 (Bloomberg) -- General Electric Co. got a $3 billion investment from Warren Buffett and said it will sell $12 billion in common stock, gathering more cash to fund operations amid the worst U.S. financial crisis since the Great Depression.

Buffett's Berkshire Hathaway Inc. will buy $3 billion in preferred shares that pay an annual 10 percent dividend and are callable after three years at a 10 percent premium, Fairfield, Connecticut-based GE said today in a statement.

The 78-year-old investor also gets warrants to buy $3 billion of common stock with a strike price of $22.25 a share for five years...

...``It's a screaming good deal'' for Buffett, said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which holds Berkshire and GE shares. Carret Zane added to its GE holdings today before the Buffett deal was announced. ``GE is doing this in part to show that they can. They're strong when others are weak.'' [Spoken like someone who just got diluted ;) ]...

...GE and Immelt, 52, told investors as recently as Sept. 25 there was no need for outside capital, including selling a large equity stake to an outside entity. Immelt that day reduced his annual profit forecast for the second time this year. He also suspended a $15 billion buyback program, shifting capital to protect GE's dividend and AAA credit rating as volatility in credit markets reduced profit at its finance arm, GE Capital...

LOL...Looks like an AAA corporate credit rating isn't much better than an AAA CDO tranche rating...

first reference i've seen that ge is part of this mess... Ask EJ Roundup Sept. 26, 2008...

nonrev321: If the bailout plan fails do you foresee the Fed having to raise rates or will they lower rates? If they lower rates could this have the potential to lead to a “Sudden Stop”
EJ: This bailout is designed to forestall the next wave of business failures, which will not be financial companies but financialized “industrial” companies, such GE. Interest rates in this environment can only be controlled by managing the availability of cash. As I explained in Why the Fed can’t lower rates, look for monetary aggregates to explode, driving down interest rates. more…

right on cue!

[GRG55]

Re: What good is an AAA bond rating...

first reference i've seen that ge is part of this mess... Ask EJ Roundup Sept. 26, 2008...


right on cue!

jk and others here have been calling GE [and GM, Ford, etc.] "financials in drag" for some time also.

[phirang]

Re: What good is an AAA bond rating...

jk and others here have been calling GE [and GM, Ford, etc.] "financials in drag" for some time also.

I wish there were a turbine pure-play...

[GRG55]

Re: What good is an AAA bond rating...

...if you have to pay 10% and dilute the shzt out of your existing shareholders to raise capital? :p

Immelt has to be praying they get that bailout package passed pronto...:rolleyes:

LOL...Looks like an AAA corporate credit rating isn't much better than an AAA CDO tranche rating...

I wonder how much stock they bought back at much higher prices than this over the past few years?

And to think that GE is considered to have one of the best systems for grooming internal management and executive talent...

GE's Stock Sale Said to Be Priced as Low as $22.25

Oct. 2 (Bloomberg) -- General Electric Co. may sell stock at a discount of as much as 9.2 percent to yesterday's closing price as the company seeks to raise $12 billion from investors to help fund its operations, according to two people with direct knowledge of the sale.

Fairfield, Connecticut-based GE's shares slid 7.1 percent to $22.75 at 8:21 a.m. in New York after closing at $24.50 yesterday. The offering, still ongoing, may be priced between $22.25 and $22.50, said the two people, who declined to be identified before the company makes a statement...

...Goldman, Sachs & Co. will manage the sale to investors, GE said yesterday...

...GE and Immelt, 52, told investors as recently as Sept. 25 there was no need for outside capital, including selling a large equity stake to an outside entity...

[c1ue]

Re: What good is an AAA rating...

Well, besides ratings in general being lagging indicators, the whole GE situation just shows what a load of crock it is that 'Neutron Jack' did any type of remarkable job at GE.

All he did was be early in the wave of outsourcing and/or selling lines of product lines (which required high input of cash and thus lowered ROE metrics), then used the freed up cash build up a gigantic mini-FIRE empire of auto loans, credit cards, and what not.

Now the FIRE monster within is providing a lovely mini-Me to the external FIRE implosion.

Immelt just was the guy left without a chair to sit in when he music stopped, just like Chuck Prince.

[BiscayneSunrise]

Re: What good is an AAA rating...

So if AAA rated companies are having to pay 10%, what is the market telling us?

Are they not really AAA rated anymore? Unlikely given that Buffet doesn't do risk; or is Buffet being duped?

Or is this the new market interest rate for AAA companies; a harbinger of upcoming inflation?

[c1ue]

Re: What good is an AAA rating...

Greg,

It is a liquidity crunch. Those who really need the money, are going to pay whatever they have to in order to get it.

I don't think the ratings matter that much in this situation.

The ratings were primarily useful in the easy credit era in the sense of getting relatively low interest rate loans.

[GRG55]

Re: What good is an AAA rating...

Greg,

It is a liquidity crunch. Those who really need the money, are going to pay whatever they have to in order to get it.

I don't think the ratings matter that much in this situation.

The ratings were primarily useful in the easy credit era in the sense of getting relatively low interest rate loans.

I don't think the ratings mattered much during the easy credit era because the number of listed companies with AAA ratings shrank dramatically during the FIRE economy years. When credit is easy and all your competitors are "using their balance sheets", it becomes difficult not to pursue the same strategy to satisfy shareholders and [idiot] analysts.

In the era of easy credit, an AAA rating carries less value because any fool can get a loan. In an era of credit limitations, the quality of the borrower becomes critical.

The reason for my starting this thread was to point out that it's not just the credit derivative sector where the credit rating agencies have let down the market and investors. They have maintained AAA credit ratings on corporations that do not deserve it. This will be no surprise to any of us here on iTulip, including yourself C1ue; but now that little deception has been illuminated in full with this GE debacle, it further calls into question why the ratings agencies have not yet had their azzes sued or at least been shut down.

They are adding to the lack of transparency; exactly the opposite of what is needed right now.

[LargoWinch]

Re: What good is an AAA rating...

What is a mystery to me is the fact that GE's senior bonds traded below AAA in the past and this despite GE's official rating.

I think the bond market is a better indicator than rating agencies.

The system must be cleansed to prevent requirement for certain ratings, which would reduce Moody's and S&P influence...

[c1ue]

Re: What good is an AAA rating...

I don't think the ratings mattered much during the easy credit era because the number of listed companies with AAA ratings shrank dramatically during the FIRE economy years. When credit is easy and all your competitors are "using their balance sheets", it becomes difficult not to pursue the same strategy to satisfy shareholders and [idiot] analysts.

Well, I don't necessarily come to the same conclusions as you do, GRG.

The reason the number of listed AAA companies went down is simply because the absolute value difference between interest rates paid by AAA and those below are significantly smaller than in past eras. Part of the AAA rating is a debt vs. capital ratio, and we all know what CEOs of this era have been doing: loading up on debt to buy back stock and line their own pockets.

But of course, under FASB rules and with nifty account gimmicks, high debt can be structured to yield very nice looking ROE metrics.

In fact I'd argue that GE's AAA rating is because of their hybrid 'FIRE'ness.

GE had become so much a financial company that 50% of profits were from GE Capital after all.

[GRG55]

Re: What good is an AAA rating...

Well, I don't necessarily come to the same conclusions as you do, GRG.

The reason the number of listed AAA companies went down is simply because the absolute value difference between interest rates paid by AAA and those below are significantly smaller than in past eras. Part of the AAA rating is a debt vs. capital ratio, and we all know what CEOs of this era have been doing: loading up on debt to buy back stock and line their own pockets.

But of course, under FASB rules and with nifty account gimmicks, high debt can be structured to yield very nice looking ROE metrics.

In fact I'd argue that GE's AAA rating is because of their hybrid 'FIRE'ness.

GE had become so much a financial company that 50% of profits were from GE Capital after all.

Seems to me you came to EXACTLY the same conclusions I did...