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GE Debt Issue Signals Credit Market Thaw

Dan Freed

General Electric's (GE Quote) decision to issue $4 billion in 30-year bonds without government backing Tuesday is apparently all about winning the confidence of investors.

Though $4 billion is a relative pittance for a huge corporate bond issuer like GE, it proves the conglomerate does not need Uncle Sam to gain access to funds. The Federal Deposit Insurance Corp. late last year unveiled a program in which it guaranteed corporate debt issuances for a small fee, something firms like Goldman Sachs (GS Quote), Morgan Stanley (MS Quote), JPMorgan Chase (JPM Quote), Bank of America (BAC Quote), Wells Fargo (WFC Quote) and GE have utilized.

GE's independent issue, however, appears to be paving the way for other issuers to raise money without government guarantees. GE's sale Tuesday was followed Wednesday by Anheuser-Busch InBev, which sold $5 billion in a wide range of maturities, according to GimmeCredit. Unlike U.S.-based GE, the Belgian brewer did not have the option of issuing government-guaranteed bonds.

Both deals are a positive sign for what had been a very difficult market for corporate borrowers, says David Killian, who oversees $500 million in fixed income and equities for Valley Forge Financial Group in King of Prussia, Penn.

"The markets are more and more open to new issues. A month ago you saw no deals at all," he says.

GE spokesman Russell Wilkerson says the company received no encouragement from government officials to price a deal without a government guarantee. GE merely wanted to take advantage of investor demand, however limited, for 30-year debt.

GE issued an additional $10 billion of shorter-term bonds which are backed by the FDIC. Issuers who want the government to guarantee their debt must pay a fee of 0.75% or the amount being raised. Wilkerson says GE decided to pay this fee because there was clearly higher demand at a better price for government-backed bonds.

Though word of the GE deal was in the market by mid-Tuesday, it is hard to discern any effect on the deal may have had on GE's stock, which rose slightly with the overall market on Tuesday.