GE 2011 Annual Report Download - page 125

GE 2011 ANNUAL REPORT 123
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Impaired loans classifi ed as TDRs in our CLL business were
$3,642 million and $2,911 million at December 31, 2011 and 2010,
respectively, and were primarily attributable to CLL Americas
($2,746 million and $2,347 million, respectively). For the year
ended December 31, 2011, we modifi ed $1,856 million of loans
classifi ed as TDRs, primarily in CLL Americas ($1,105 million) and
CLL EMEA ($646 million). Changes to these loans primarily
included debt to equity exchange, extensions, interest only pay-
ment periods and forbearance or other actions, which are in
addition to, or sometimes in lieu of, fees and rate increases. Of our
modifi cations classifi ed as TDRs in the last year, $101 million have
subsequently experienced a payment default.
CREDIT QUALITY INDICATORS
Substantially all of our Commercial fi nancing receivables portfolio
is secured lending and we assess the overall quality of the portfo-
lio based on the potential risk of loss measure. The metric
incorporates both the borrower’s credit quality along with any
related collateral protection.
Our internal risk ratings process is an important source of
information in determining our allowance for losses and rep-
resents a comprehensive, statistically validated approach to
evaluate risk in our fi nancing receivables portfolios. In deriving
our internal risk ratings, we stratify our Commercial portfolios
into twenty-one categories of default risk and/or six categories
of loss given default to group into three categories: A, B and
C. Our process starts by developing an internal risk rating for
our borrowers, which are based upon our proprietary models
using data derived from borrower fi nancial statements, agency
ratings, payment history information, equity prices and other
commercial borrower characteristics. We then evaluate the
potential risk of loss for the specifi c lending transaction in the
event of borrower default, which takes into account such fac-
tors as applicable collateral value, historical loss and recovery
rates for similar transactions, and our collection capabilities. Our
internal risk ratings process and the models we use are subject to
regular monitoring and validation controls. The frequency of rat-
ing updates is set by our credit risk policy, which requires annual
Audit Committee approval. The models are updated on a regular
basis and statistically validated annually, or more frequently as
circumstances warrant.
The table below summarizes our Commercial fi nancing receiv-
ables by risk category. As described above, fi nancing receivables
are assigned one of twenty-one risk ratings based on our process
and then these are grouped by similar characteristics into three
categories in the table below. Category A is characterized by
either high credit quality borrowers or transactions with signifi -
cant collateral coverage which substantially reduces or eliminates
the risk of loss in the event of borrower default. Category B is
characterized by borrowers with weaker credit quality than those
in Category A, or transactions with moderately strong collateral
coverage which minimizes but may not fully mitigate the risk of
loss in the event of default. Category C is characterized by bor-
rowers with higher levels of default risk relative to our overall
portfolio or transactions where collateral coverage may not fully
mitigate a loss in the event of default.
COMMERCIAL
Secured
December 31 (In millions) A B C Total
2011
CLL
Americas (a) $ 73,103 $2,816 $4,586 $ 80,505
Europe 33,481 1,080 1,002 35,563
Asia 10,644 116 685 11,445
Other (a) 345 — 91 436
Total CLL 117,573 4,012 6,364 127,949
Energy Financial
Services 5,727 24 18 5,769
GECAS 10,881 970 50 11,901
Other 1,282 — — 1,282
Total $135,463 $5,006 $6,432 $146,901
2010
CLL
Americas (a) $ 78,939 $4,103 $5,516 $ 88,558
Europe 33,642 840 1,262 35,744
Asia 10,777 199 766 11,742
Other (a) 544 66 54 664
Total CLL 123,902 5,208 7,598 136,708
Energy Financial
Services 6,775 183 53 7,011
GECAS 11,034 1,193 388 12,615
Other 1,788 — — 1,788
Total $143,499 $6,584 $8,039 $158,122
(a) During 2011, we transferred our Railcar lending and leasing portfolio from CLL
Other to CLL Americas. Prior-period amounts were reclassified to conform to the
current-period presentation.
For our secured fi nancing receivables portfolio, our collateral
position and ability to work out problem accounts mitigates our
losses. Our asset managers have deep industry expertise that
enables us to identify the optimum approach to default situations.
We price risk premiums for weaker credits at origination, closely
monitor changes in creditworthiness through our risk ratings and
watch list process, and are engaged early with deteriorating
credits to minimize economic loss. Secured fi nancing receivables
within risk Category C are predominantly in our CLL businesses
and are primarily composed of senior term lending facilities and
factoring programs secured by various asset types including
inventory, accounts receivable, cash, equipment and related
business facilities as well as franchise fi nance activities secured
by underlying equipment.
Loans within Category C are reviewed and monitored regu-
larly, and classifi ed as impaired when it is probable that they will
not pay in accordance with contractual terms. Our internal risk
rating process identifi es credits warranting closer monitoring;
and as such, these loans are not necessarily classifi ed as non-
earning or impaired.
Substantially all of our unsecured Commercial fi nancing
receivables portfolio is attributable to our Interbanca S.p.A. and
GE Sanyo Credit acquisitions in Europe and Asia, respectively.
At December 31, 2011 and December 31, 2010, these fi nanc-
ing receivables included $325 million and $208 million rated
A, $748 million and $964 million rated B, and $596 million and
$783 million rated C, respectively.