American Express 2005 Annual Report Download - page 39

Express Credit Account Master Trust (the Lending
Trust), are presented in the following table on a man-
aged basis:
(Billions) Amount
American Express Credit Corporation:
Fixed and Floating Rate Medium-Term Notes $ 4.7
American Express Centurion Bank:
Floating Rate Medium-Term Notes $ 0.9
American Express Bank, FSB:
Floating Rate Medium-Term Notes $ 1.0
American Express Receivables Financing
Corp V LLC:
Floating Rate Senior and Subordinated Notes $ 1.2
American Express Credit Account Master Trust:
Trust Investor Certificates (off-balance sheet) $ 5.4
Compared to the 2004 long-term funding activity, the
long-term debt issues in 2005 have longer average
maturities and a wider distribution along the maturity
spectrum to reduce and spread out the refinancing
requirement in future periods.
In 2006, the Company along with its subsidiaries,
Credco, Centurion Bank and FSB, as well as through its
securitization trusts, expects to issue approximately $24
billion in medium- and long-term debt to fund business
growth and refinance a portion of maturing medium-
and long-term debt. The Company expects that its
planned funding during the next year will be met
through a combination of sources similar to those on
which it currently relies. However, the Company con-
tinues to assess its needs and investor demand and may
change its funding mix. The Company’s funding plan is
subject to various risks and uncertainties, such as dis-
ruption of financial markets, market capacity and
demand for securities offered by the Company, regula-
tory changes, ability to sell receivables and the perfor-
mance of receivables previously sold in securitization
transactions. Many of these risks and uncertainties are
beyond the Company’s control.
The Company also maintains contingent liquidity
resources for alternative funding sources principally
through an investment liquidity portfolio discussed
below. In addition, as of December 31, 2005, Credco
had the ability to issue approximately $3 billion of debt
securities under shelf registration statements filed with
the Securities and Exchange Commission (SEC).
The Company believes that its funding strategy allows
for the continued funding of business operations
through difficult economic, financial market and busi-
ness conditions.
The Company’s funding strategy is designed to maintain
high and stable debt ratings from the major credit rating
agencies, Moody’s, Standard & Poor’s and Fitch Ratings.
Maintenance of high and stable debt ratings is critical to
ensuring the Company has continuous access to the
capital and credit markets. It also enables the Company
to reduce its overall borrowing costs. At December 31,
2005, its debt ratings were as follows:
Moody’s
Standard
& Poor’s
Fitch
Ratings
Short-term P-1 A-1 F1
Senior unsecured A1 A+ A+
The Company actively manages the risk of liquidity and
cost of funds resulting from the Company’s financing
activities. Management believes a decline in the
Company’s long-term credit rating by two levels could
result in the Company having to significantly reduce
its commercial paper and other short-term borrowings.
Remaining borrowing requirements would be addressed
through other means such as the issuance of long-
term debt, additional securitizations, increased deposit
taking, the sale of investment securities or drawing on
existing credit lines. This would result in higher interest
expense on the Company’s commercial paper and other
debt, as well as higher fees related to unused lines
of credit. The Company believes a two level down-
grade is highly unlikely due to its capital position and
growth prospects.
Parent Company Funding
Total Parent Company long-term debt outstanding was
$5.2 billion and $5.7 billion at December 31, 2005 and
2004, respectively. At December 31, 2005 and 2004, the
Parent Company had $4.3 billion of debt or equity secu-
rities available for issuance under shelf registrations filed
with the SEC.
The Board of Directors authorized a Parent Company
commercial paper program. This program would be
supported by a $2.1 billion multi-purpose committed
bank credit facility that expires incrementally through
2009. There was no Parent Company commercial paper
outstanding during 2005 and 2004, and no borrowings
have been made under its bank credit facility.
Financial Review
AXP / AR.2005
[37 ]