Goldman Sachs Investment Banking Pitch Book
PRELIMINARY CONFIDENTIAL DRAFT-SUBJECT TO CHANGE AFTER FURTHER DILIGENCE AND REVIEW
INVESTMENT BANKING
DIVISION
Goldman
Sachs Preliminary DFS Topics for Consideration
Summary of Selected Key Topics and Preliminary Perspectives
What is the impact of a sub-investment grade corporate credit rating on DFS?
■ There are likely two primary impacts of a credit downgrade on DFS:
Inability to source funding via the commercial paper market
Opal could potentially increase the size of the securitization program and / or access other forms of funding (e.g., an ABL revolver) to replace
the commercial paper funding sources
Higher funding costs across the range of funding sources
The Company should however continue to have access to the conduit and securitization markets, as well as the unsecured market
Could DFS be "ring-fenced" to mitigate the potential impacts of a corporate credit rating downgrade?
■ While there are examples of similar situations whereby the rating agencies have delineated between opco / holdco structures when dealing with captive
financing subsidiaries (e.g., Ford), it is likely that the ring-fenced entity would be rated within 1-2 notches of the parent
A range of other factors could influence the chances of benefitting from a ring-fence approach, including the nature of the protections / barriers put
in place between the parent and subsidiary, the ownership structure of the subsidiary, the standalone credit quality of the subsidiary, perceptions
around the parent's credit strength and the level of co-dependence between the parent and subsidiary, among others
On balance, we do not believe the Company would materially benefit from a ring-fenced structure given the Company would still likely be able to
access key funding markets, albeit at slightly higher funding costs
3 Would a separation of Opal into Client and Enterprise businesses automatically require a divestiture of DFS?
A separation, in and of itself, would not necessarily require a divestiture of DFS. There exists the potential to, in effect, separate the DFS portfolio and
establish a DFS successor entity at each of Client and Enterprise
Key factors to consider would include the credit quality and ratings of the new companies, the portfolio diversity of the receivables within each DFS
successor entity and the resulting ability to access the funding markets and cost of funding
4 Are there potential third party alternatives available for DFS?
There is likely to be interest from third parties in acquiring all or a portion of DFS
There are examples of other companies that have outsourced their financing activities and established relationships with third party financing providers
(e.g., Apple /Barclays, Kohl's/ Capital One)
Key factors will likely center around what level of control Opal would like to maintain from a customer interfacing perspectives and determining a
set of governance controls for the relationship (e.g., underwriting standards, financing terms, veto rights and final authority)
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