Mercedes 2001 Annual Report Download - page 67

Analysis of the Financial Situation 63
Refinancing at the DaimlerChrysler Group. On February
26, 2001, the corporate rating of the DaimlerChrysler
Group was reduced by the Standard & Poor’s (S&P)
rating agency from A to A-, and by Moody’s Investors
Service (Moody’s) from A2 to A3. The simultaneous
downgrading of the short-term credit rating from A-1
to A-2 (S&P) and from P-1 to P-2 (Moody’s) not only
had the effect of making our short-term borrowing
(commercial paper) more expensive, but also reduced
the volume of commercial paper that can be placed,
particularly in the United States. In January 2001,
DaimlerChrysler therefore began to replace short-term
financing with longer-term borrowings reaffirming the
strategy implemented in the second half of 2000
through the issue of a multi-currency, multi-tranche
corporate bond in the amount of U.S. dollar 7.1 billion.
In March 2001, the Group continued and almost
completed this strategy with the issue of a multi-tranche
bond totaling €6.5 billion.
After these two large transactions, as the year pro-
gressed DaimlerChrysler was able to cover its current
financing requirements with smaller transactions in the
capital markets. These transactions took place through
medium-term note programs in the form of public bonds
and private placements. In the area of public bonds,
DaimlerChrysler was able to reach new market seg-
ments and groups of investors in the international
capital markets by means of a first issue of bonds in
Polish zloty, Slovakian koruna and Hungarian forint,
and in a local capital market with a bond issue in South
African rand.
The 364-day tranche of the global credit facility
was converted into a 2-year working capital line in
2001. Altogether, the facility established in 1999
comprises three tranches with varying periods totaling
U.S. dollar 18 billion. Since its inception, this credit
facility has not been utilized.
Primarily as a result of weak demand in the US
automotive market, at the end of October 2001, Standard
& Poor’s again lowered our long-term rating from
A- to BBB+. Moody’s Investors Services, however, left
our rating unchanged at A3.
Early recognition and consistent management of future
risks. In view of the global operations of Daimler-
Chrysler and the increasingly intense competition in all
markets, the Group’s business units are subject to many
risks which are directly connected with entrepreneurial
activity. We have developed and used effective moni-
toring and control systems for the early recognition and
assessment of existing risks and the formulation of
appropriate responses. With a view to the legal require-
ments, we have integrated the Group’s early-recognition
systems into a risk-management system. The risk
management system is an integral component of the
entire planning, controlling and reporting process and
is responsible for systematically identifying, assessing,
monitoring and documenting risks. Risks are identified
by the management of the business segments and units
applying predefined risk categories and assessed in
terms of their probability of occurrence and possible
extent of damage. The reporting of relevant risks is
regulated by limit levels defined by management.
Within the framework of risk management, we have
developed and implemented measures to avoid and
reduce risks and to safeguard against their potential
effects. The identified risks are regularly monitored
by management.
The risk-management system of the Daimler-
Chrysler Group aims to ensure that management reco-
gnizes significant risks at an early stage and initiates
compensating measures. Compliance with the Group’s
uniform guidelines as defined in the risk management
manual is safeguarded by our internal auditors. In addi-
tion, the external auditors review the early-recognition
system integrated in the risk management system in
terms of its fundamental suitability for recognizing at
an early stage any developments that might jeopardize
the continued existence of the company.