GE offloads assets
On November 16, General Electric (GE) announced that its lending arm, GE Capital, had sold $1.5 billion worth of its healthcare equipment finance portfolio to TIAA Bank. The company didn’t disclose the financial terms of the deal.
The latest move depicts another step by newly appointed CEO Larry Culp to strengthen liquidity. According to Joe Ritchie, an analyst at Goldman Sachs (GS), GE Capital has a ~$20 billion gap in capital funding through 2020. Citing GE’s quarterly filing with the Securities and Exchange Commission, Ritchie said, “GE Capital has $24 billion debt that will be due in 2019/2020.”
The divested portfolio includes loans and leases to ~1,100 hospitals and 3,600 practicing physicians as well as diagnostic and imaging centers across the United States. The equipment financed includes monitoring, imaging, respiratory, ultrasound, surgical, and lab materials.
In addition to the portfolio sale, the two parties entered into a five-year vendor financing agreement for GE Healthcare’s US customers. As per the company, the leadership and sales force team of healthcare equipment finance will be integrated into the GE Healthcare division.
A move to improve liquidity
For the last few years, GE has been grappling with a severe liquidity problem. Therefore, to strengthen its liquidity position, the company has announced a series of restructuring plans in June this year. The recent sale of its healthcare equipment portfolio is part of GE’s broader restructuring initiative under which it intends to sell up to 49.9% of its Healthcare business and then spin-off the unit as a standalone company.
Apart from this, on November 13, Culp announced that it would be entering into a series of agreements with Baker Hughes, a GE company (BHGE), including a stake sale in the latter that would raise almost $4 billion for GE. Before this, on November 6, the company announced that private equity company American Industrial Partners had agreed to buy its current lighting business unit for an undisclosed amount.
Analysts believe that GE’s restructuring initiatives are still in an early stage. The company would have to initiate more such asset sales speedily to strengthen its balance sheet and shore up its cash position.
According to Bloomberg, citing Bank of America (BAC) analyst Andrew Obin’s client note, “[GE] has a long road to repair its balance sheet ahead of it, and based on the timing of certain events, GE could potentially have to put more than $10 billion of equity into GE Capital.”
GE makes up ~3.2% of the Industrial Select Sector SPDR ETF (XLI).