GE to Reduce Reliance on Short-Term Debt

General Electric Co. tried Thursday to defuse a growing controversy over its GE Capital financial arm, while attacks on the company continued.

On Wall Street, GE’s shares fell $1.35 to a one-month low of $37.45 one day after Bill Gross, manager of the world’s biggest bond fund, said he would no longer own the conglomerate’s short-term debt because he believes the company is too heavily leveraged.

Gross, chief bond investor at Newport Beach-based Pacific Investment Management Co., on Wednesday also questioned whether GE has been “totally forthcoming” in explaining how it has produced earnings growth of at least 15% a year for decades.

In response Thursday, GE Capital said it plans to sell about $25 billion of longer-term notes and bonds in the second quarter to reduce its reliance on short-term debt, or commercial paper.

Credit-rating firms have echoed Gross’ concerns about GE Capital’s short-term debt, which recently stood at $103 billion. Short-term debt is less expensive than long-term debt, but heavy use of short-term debt can leave a firm vulnerable to a sudden credit crunch.

Commercial paper accounts for 42% of GE Capital’s debt, “a higher portion ... than we normally would like,” said Keith Sherin, GE’s chief financial officer. The note and bond sales will replace a chunk of that debt, GE said.

Meanwhile, Fannie Mae, the biggest U.S. mortgage buyer, said GE is hypocritical in lobbying for more disclosure from government-sponsored mortgage companies.

GE, which competes with Fannie Mae and Freddie Mac in buying mortgages and packaging them into securities sold to investors, helps fund FM Watch, a group that is pushing for more controls on government-sponsored Fannie Mae and Freddie Mac.

The two have an unfair advantage in lending, FM Watch says, because their government sponsorship lets them borrow at rates near the U.S. Treasury’s cost of funds.

“It’s the ultimate in hypocrisy for GE to be going in there talking about our disclosure,” said Robert McCarson, Fannie Mae’s director of corporate relations. “We know less about the financial condition of GE Capital than we do about any bank.” GE declined to comment.