Goldman Sachs 2002 Annual Report Download - page 46

Short-Term Borrowings
Goldman Sachs obtains unsecured short-term borrow-
ings principally through issuance of promissory notes,
commercial paper and bank loans. Short-term borrow-
ings also include the portion of long-term borrowings
maturing within one year.
The following table sets forth our short-term borrowings:
SHORT-TERM BORROWINGS
AS OF NOVEMBER
(IN MILLIONS) 2002 2001
Promissory notes $20,433 $15,281
Commercial paper 9,463 8,353
Bank loans and other 4,948 6,794
Current portion of
long-term borrowings 5,794 7,169
Total $40,638 $37,597
Our liquidity depends to an important degree on our
ability to refinance these borrowings on a continuous
basis. Investors who hold our outstanding promissory
notes and commercial paper have no obligation to pur-
chase new instruments when the outstanding instru-
ments mature. As part of our overall liquidity policies,
we maintain unencumbered assets in an amount that, if
pledged or sold, would provide the funds necessary to
replace unsecured obligations that are scheduled to
mature (or where holders have the option to redeem)
within the coming year. For a discussion of factors that
could impair our ability to access these and other mar-
kets, see “—Results of Operations—Certain Factors
That May Affect Our Results of Operations.” See
Note 5 to the consolidated financial statements for fur-
ther information regarding our short-term borrowings.
Credit Ratings
Goldman Sachs relies upon the short-term and long-term
debt capital markets to fund a significant portion of its
day-to-day operations. The cost and availability of debt
financing is influenced by our credit ratings. Credit rat-
ings are important when we are competing in certain
markets and when we seek to engage in longer term
transactions, including over-the-counter (OTC) deriva-
tives. We believe our credit ratings are determined prima-
rily based on the credit rating agencies’ assessment of the
external operating environment, our liquidity, market
and credit risk management practices, the level and vari-
ability of our earnings, our franchise, reputation and
management and our capital base. An adverse change in
any of these factors could result in a reduction in our
credit ratings which, in turn, could increase our borrow-
ing costs and limit our access to the capital markets or
require us to post additional collateral and permit coun-
terparties to terminate transactions, pursuant to our obli-
gations under bilateral provisions in certain of our trad-
ing and collateralized financing contracts. This could
reduce our earnings and adversely affect our liquidity.
As of November 2002, additional collateral that would
have been callable in the event of a one level reduction in
our long-term credit ratings, pursuant to bilateral agree-
ments with certain counterparties, was not material.
The following table sets forth our credit ratings as of
November 2002:
SHORT-TERM LONG-TERM
DEBT DEBT
Fitch(1) F1+ AA-
Moody’s Investors Service(2) P-1 Aa3
Standard & Poor’s(3) A-1 A+
(1) On May 17, 2002, Fitch affirmed Goldman Sachs’ credit ratings but
revised its outlook for the long-term debt rating from “ stable” to
“ negative.”
(2) On August 9, 2002, Moody’s Investors Service upgraded Goldman
Sachs’ long-term debt rating from A1 to Aa3.
(3) On October 17, 2002, Standard & Poor’s lowered Goldman Sachs’
short-term debt rating from A-1+ to A-1. Standard & Poor’s affirmed
our long-term debt rating of A+ and revised its outlook for the long-
term debt rating from “ negative” to “ stable.”
Management Oversight of Liquidity, Capital
and Funding
Goldman Sachs has established management and infra-
structure to oversee our liquidity, capital and funding.
The Finance Committee establishes and assures compli-
ance with our liquidity policies and has oversight respon-
sibility for liquidity risk, the size and composition of our
balance sheet, our capital base and our credit ratings. The
Committee regularly reviews our funding position and
capitalization and makes adjustments in light of current
events, risks and exposures. See “—Risk Management—
Risk Management Structure” below for a further descrip-
tion of the committees that participate in our risk
management process.
Goldman Sachs maintains a Liquidity Crisis Plan that
identifies a structure for analyzing and responding to a
liquidity-threatening event. The Liquidity Crisis Plan pro-
vides the framework to estimate the likely impact of a
liquidity event on Goldman Sachs and outlines which and
to what extent liquidity maintenance activities should be
implemented based on the severity of the event. It also
lists the crisis management team and internal and exter-
nal parties to be contacted to ensure effective distribution
of information.
Contractual Obligations and Contingent Commitments
Goldman Sachs has contractual obligations to make future
payments under long-term debt and long-term noncance-
lable lease agreements and has contingent commitments
under a variety of commercial arrangements as disclosed in
the notes to the consolidated financial statements.
Managem ent’s D iscussion and A nalysis
44 G O L D M A N SA CH S 2002 AN N UA L R EPO RT