At the turn of the millennium General Electric was the most valuable company in the world, a beacon of industrialism and America’s economic and technological domination. But things have changed – the company is now a poster child for the pitfalls of debt-driven expansion.

Under former chief executive Jack Welch, GE expanded steadily through the nineties, before Jeff Immelt took over as CEO in 2001. Immelt made a series of costly acquisitions, most notably expanding the company’s financial arm in the run up to the 2008 crash and the recession that followed.

During the crisis, GE carried $500 billion of debt, across a sprawling and difficult-to-manage network of businesses in areas including power, aviation and healthcare – not to mention a highly problematic loan book at GE Capital, that did not weather the downturn well.

GE appeared to have made good progress in right-sizing its business mix and debt load when Trian Partners announced its stake in the company in October 2015. Immelt was steadily unwinding GE Capital, with the intention of returning the company to its industrial roots.

Trian accumulated 98.5 million shares for roughly $2.5 billion – at an average price of approximately $25 per share – stating at the time that the company was “undervalued and underappreciated.”

The firm predicted GE stock would be worth at least $40 a share by the end of 2017, as the company continued to reorganize and downsize its vast empire.

Instead the opposite has happened. GE’s share price has declined more than 60% in the three years since Trian first announced its investment in the company. In early November, GE’s stock price hit a recession-era low of $8 as concerns mounted over its finances and the viability of its ailing power business.

Trian began to trim its position in late 2015, when the company’s stock price had climbed to a post-crisis peak of about $30. But since 2017, their stake has held steady at roughly 70.8 million shares – a position that has incurred heavy mark-to-market losses.

Things have only grown worse for the company since then, as the board ousted John Flannery – appointed as CEO barely a year earlier – in October this year and hired Larry Culp to replace him. Culp vowed to turn the business around, but with GE stock continuing to drop and its credit ratings flirting with junk status, the market is clearly skeptical.

Trian’s GE holdings have lost roughly $900 million in value since September last year, regulatory filings show. The value of its stake has been particularly hard hit during GE’s recent selloff – Trian’s 70.8 million shares are currently worth roughly $550 million, down from $800 million at the end of the third quarter.

Trian had initially pushed for certain operational changes to be made at the company, but as performance deteriorated the hedge fund turned to more drastic measures, installing its co-founder Ed Garden to GE’s board of directors in October 2017. The firm has been vocal about the need to separate GE’s businesses.

In June, GE announced it would spin off two of its largest divisions – its healthcare business and a stake in oil services company Baker Hughes. Trian said the move would “make its corporate structure leaner, substantially reduce debt and improve liquidity.”

The recent selloff in GE shares was triggered by concerns over the company’s mounting debt pile and its long-suffering power business, which culminated in a $22 billion write down in the third quarter. The company also told investors it was cutting the quarterly dividend on its common stock to a token penny, in an attempt to shore up its balance sheet.

New CEO Larry Culp delivered the news to investors just one month into his tenure. Culp’s appointment was initially well received by investors, partly because he was the first outsider to run GE in its 126-year history. GE shares rallied more than 20% on the announcement, under renewed optimism that Culp could turn the company around.

But investors have since headed for the exit amid concerns about the company’s leverage and liquidity, as well as its ailing power business—the writedown of which is currently being investigated by the Securities and Exchange Commission.

The company’s old mortgage business is also under investigation by the Department of Justice, while its long term care insurance division faces increasing liabilities as the population ages.

As GE’s stock price closed in on $7, spreads on the company’s bonds widened to high-yield levels, fueling concerns that the conglomerate could be downgraded to junk.

In the past weeks, the dollar price of the company’s $5.7 billion 5% preferred securities – which sit just above its common stock – plunged around 20 points to roughly 74, for a yield to maturity of about 8.5%.

Short-term funds managed by Pimco and Vanguard, who bought those notes expecting them to be called in 2021, have been identified as holders – but given where the securities are now trading, a call is seen as highly unlikely.

As GE’s woes have mounted, CDS spreads on its debt have blown out. The company’s most pressing debt is GE Capital’s $6 billion of bonds due 2020, which are trading at 94.9 to yield 5.068% yield. Its longer-dated bonds have plunged to levels near those of its preferreds – GE has $2 billion of 4.125% bonds maturing in 2042, currently trading at 73.7 for a 6.26% yield.

“It’s abundantly clear to us that investors consider leverage to be far and away the most pressing issue concerning GE today,” UBS analyst Steven Winoker wrote in a recent report. “While GE has been under considerable pressure lately, we maintain our conviction that the stock presents a long-term capital appreciation opportunity.” UBS has a $13 price target on GE shares.

Given its size – GE possesses a vast $107 billion in assets – the company is not without options for raising cash.

GE raised $1.5 billion in November by selling its portfolio of loans and leases for healthcare equipment to TIAA Bank. The company raised a further $4 billion in the same month by selling nearly a quarter of its holdings in oil and gas company Baker Hughes, leaving it with a stake of just over 50% in the company.

Several hedge funds increased their GE holdings during the third quarter, before its share price collapsed.

Andreas Halvorsen’s Viking Global Investors almost doubled its stake, adding over 64 million shares to its book. The $15.1 billion firm owned some 132.5 million GE shares with a market value of approximately $1.5 billion as of September 30, according to the latest regulatory filings.

Canyon Capital Advisors, a hedge fund run by Joshua Friedman and Mitch Julis, established a new position in GE. The $18.3 billion firm purchased 17.76 million shares for a total of $200.5 million, indicating an average share price of just over $11.

It is unclear whether Viking or Canyon held onto their GE shares during the selloff as 13F filings are submitted with a 45-day delay.

Trian, for its part, is focused on the company’s long-term value. The hedge fund typically holds its activist positions anywhere between five and seven years, a person familiar with the firm’s thinking said. The majority of GE’s asset value lies in its aviation and healthcare business, but there is still money to be made in the power business, they added.

“There are a handful of misconceptions in the stock price right now. There are good assets and the problems are solvable. There’s no liquidity problem whatsoever in the company and you don’t have very big debt maturities coming through,” the person said. “Change is accelerating and there are great underlying businesses and assets that have been underappreciated as a result of the focus on the power business.”

Since Trian joined the board, GE has reduced its corporates costs and approved plans to downsize the business and reduce its balance sheet via asset sales.

However, some investors are concerned that selling assets now could eat into profits later. “It’s like burning your furniture to keep you warm,” said an investor whose firm has exited its position in GE. “There are no winners.”

Trian declined to comment.

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