General Electric Co. said its GE Capital financial-services arm would participate in the federal government's new debt-guarantee program, making it the first company with significant industrial operations to tap the program.Joining the program could make it easier for GE to issue new debt in coming months. In recent months, investors have worried about GE's liquidity, and the price it has to pay to borrow money.
"It allows us to source our debt competitively with other financial institutions that are eligible," said Russell Wilkerson, a GE spokesman. GE said it expects to qualify for the program by Friday.
CEO Jeffrey Immelt, seen last year, plans to shrink GE's finance unit.
GE said Wednesday that under the program, the government will guarantee as much as $139 billion in long- and short-term debt through next June. But, Mr. Wilkerson added, "This does not mean that GE intends to issue this amount of debt."
With roughly $600 billion in assets, GE Capital is as big as some large banks. The finance unit last year supplied almost half of GE's profit. But GE Chairman Jeffrey Immelt this September said he would shrink the unit in response to the credit crisis. GE Capital issues loans for everything from aircraft engines to commercial real estate and restaurant equipment.
The debt-guarantee program is the second major federal initiative prompted by the credit crisis that GE has tapped. The company also participates in a program under which the government buys short-term debt known as commercial paper.
Until September, GE relied on selling commercial paper to obtain more than 15% of the funding of the finance unit. But investors began shying away from commercial paper after Lehman Brothers Holdings Inc. filed for bankruptcy protection and several other big financial players struggled. GE has said it would reduce its reliance on commercial paper, but it wasn't clear how the company would replace that funding.
Nigel Coe, an analyst at Deutsche Bank, said in a note that GE had "retained a greater degree of strategic and operational flexibility" by taking advantage of the government's debt guarantee. But Mr. Coe said it could cost GE as much as $1 billion to tap the full guarantee. He also said that the fact that GE feels the need to join the program could "amplify" that the credit market remains under stress.
Keith Sherin, GE's chief financial officer, said that even after paying for the insurance, it would still be cheaper for GE to issue debt backed by the federal program.
Stock investors had little reaction to the news, which was announced in midafternoon. GE shares changed hands at $16.29 in 4 p.m. composite trading on the New York Stock Exchange, down $1.52, or 8.5%.
"I think it will take a little time for this info to be understood by the market," Mr. Sherin said.
GE said it was eligible to participate in the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program because it owns a federal savings bank and a Utah industrial bank whose deposits are insured by the FDIC.
