SCENARIOS-What a ratings cut would mean for GE

BOSTON, March 10 - A widely expected cut to General Electric Co's coveted triple-A credit rating could make it more expensive for the conglomerate to borrow money or even leave it on the hook for billions in collateral.

Wall Street is bracing for a downgrade. Moody's Investors Service is reviewing its ratings on GE for a possible downgrade, while Standard & Poor's has a negative outlook on the company's debt.

The key question for both investors and GE itself is how deep the cut would be.

Below is a look at some scenarios that could play out if either of the two big agencies lower their ratings on GE debt. The next step down is "Aa1" for Moody's and "AA+" for S&P.

Any reduction would make it costlier to borrow money, which in turn could make GE Capital less profitable. However, GE bonds have long traded at a lower premium than typical for a "triple-A" company.

GE Capital 10-year notes trade at a yield of about 9.5 percent, a 6.7 percentage-point premium over U.S. Treasury bills. That is almost as a high a yield as is common with bonds rated "triple-B," eight notches below GE Capital's rating.

A CUT TO DOUBLE-A RANGE

Even if it loses its "triple-A" status, GE will be able to sell top-rated bonds.

GE can borrow up to $126 billion under the federal government's Temporary Liquidity Guarantee Program, which allows borrowers to issue bonds backed by the Federal Deposit Insurance Corp, and another $96 billion available through the Federal Reserve's Commercial Paper Funding Facility.

GE Capital sold $8 billion in FDIC-backed bonds on Monday, so it has now raised $40 billion of the $45 billion in long-term debt it planned for the year.

However, some investment funds have rules that allow them to hold only "triple-A" rated debt, so a cut of even one notch could prompt them to unload GE bonds.

The Fairfield, Connecticut-based company's management -- which long defended the triple-A as a key competitive advantage -- has begun to acknowledge a downgrade is possible, but Chief Financial Officer Keith Sherin said last week he could not imagine GE being cut below the "double-A" range.

Research services CreditSights and GimmeCredit, as well as noted bond investor Dan Fuss of Loomis Sayles have said GE could be cut to the "double-A" range.

A SLIP TO SINGLE-A RANGE

If its ratings are cut to Moody's "A1" or S&P's "A+" or lower, GE Capital would be required to put up $8.2 billion in collateral to meet obligations related to certain investment contracts.

GE, which ended 2008 with $523.76 billion in outstanding short-term and long-term debt, currently is under no obligation to post additional capital or collateral against any of its debt instruments until its long-term ratings are cut below the "double A" range, according to filings with the U.S. Securities and Exchange Commission.

STEEP DOWNGRADE TO TRIPLE-B RANGE

A dramatic downgrade below the "single-A" range would put the company on the hook for another $2.9 billion in collateral for some outstanding swap, forward and option contracts.

A cut to some of GE's short-term credit ratings -- which are measured on a different scale -- below Moody's "P-1" or S&P's "A-1" levels could trigger a portion of that $2.9 billion in obligations.

CreditSights analysts wrote in a research note that a cut in GE's short-term ratings "would be a death knell" to its ability to sell commercial paper, given that market's recent turmoil.

GE has been working to cut back its reliance on the commercial paper market, which companies use to raise money for short periods of time. Last month the company said it had cut back its outstanding commercial paper to $60 billion, down from $88 billion at the end of the third quarter of 2008.

GE is one of just five companies to hold triple-A ratings from both agencies. The others are Johnson & Johnson, Exxon Mobil Corp, Microsoft Corp and Automatic Data Processing Inc.

S&P first gave GE its top rating in 1956, while Moody's has held GE's rating at its top rank since 1967.