GE awaits distress signals

The head of corporate restructuring lending at General Electric Co said on Wednesday (local time) he expects to hear more distressed companies knocking on his door as the US economy slows and credit standards tighten.

After the meltdown of the subprime mortgage market - loans to less creditworthy individual borrowers - corporate credit markets have tightened up in recent weeks, as investors stepped back to ensure they were satisfied with their returns for taking on risk.

"With what's been going on in the last three or so weeks, we do have an expectation that things will turn down and get probably a lot busier in the restructuring area," said Rob McMahon, managing director for restructuring at GE Corporate Lending.

McMahon declined to predict just when the floodgates would burst, saying he expects his group to make about $2 billion to $2.5 billion in new loans this year, roughly even with 2006 activity levels.

While GE, the world's second-largest company by market capitalization after Exxon Mobil Corp, is best known for building heavy equipment like turbines used in power plants, the company last year generated about 28 percent of its $163.39 billion in revenue through its finance operations.

Because of GE's diversification and size, investors regard it as a bellwether of the economy. McMahon's group is a bit of a hedge against the US economy, since its business picks up when the environment sours.

"There seems to be a higher level of reality now," McMahon said. "Covenant-light loans now are being flexed into more covenanted structures; pricing is increasing dramatically."

Agencies

(China Daily 08/03/2007 page16)