Description	Type	Principal Due (USD)	Coupon/Base Rate	Maturity
4.250% Notes Due 2040	Bonds and Notes	748.0	4.250%	2040
4.350% Notes Due 2050	Bonds and Notes	1,277.0	4.350%	2050
Current Portion of Long-Term Borrowings	Other Borrowings	1,002.0	5.030%	Sep-30-2022
Senior Unsecured Debt - 3.450% Notes Due 2027 *	Bonds and Notes	1,000.0	3.450%	2027
Senior Unsecured Debt - 3.625% Notes Due 2030 *	Bonds and Notes	1,250.0	3.625%	2030

On 9 November 2021, GE announced that they plan to split into 3 separate companies. In early 2023, the company will have a tax-free spin-off of its health care operations and in 2024 will spin-off the GE Renewable Energy, GE Digital, and GE power into another company. This will leave GE has an aviation focused company. Shortly after the announcement went public, S&P Global Ratings announced that it would place GEs bonds under review for a possible downgrade because spinning off the healthcare operations leaves GE less diversified. GEs credit rating is currently BBB. Assume that GEs debt is downgraded one grade to BB. Current yields for both BBB and BB rated bonds are:

Term	BBB	BB
1-year	0.99%	2.05%
5-year	2.30%	3.76%
6-year	2.50%	4.05%
7-year	2.68%	4.31%
8-year	2.84%	4.54%
9-year	2.98%	4.74%
10-year	3.10%	4.93%
19-year	3.75%	5.91%
29-year	3.84%	6.08%

1. Which do you think will happen first: investors re-price GEs bonds or S & P changes the ratings on the bonds? Explain why.
2. Explain the implications of moving from a BBB-rated bond to a BB-rated bond.
3. Calculate the value of GEs bonds both before and after the change in bond ratings.
4. Identify the bonds that have the greatest change in value. Explain why those bonds had the greatest change in value.
5. Assume the potential bond rating change has no effect on GEs equity. Explain how the rating change affects GEs cost of capital and why.
6. Is the assumption in (5) accurate? Explain why the bond rating change will have an effect on GEs beta.