by Timothy Sifert
NEW YORK, Oct 19 (IFR) - Fresh off its underwhelming
third-quarter earnings, Goldman Sachs is marketing a US$250m
offering of US$25-par, 50-year notes to investors. The deal, in
the market today, takes advantage of the flattening Treasury
curve, and a pocket of demand usually left alone by the
investment bank: retail buyers.
Opting for a retail-focused bond offering, instead of the
more common institutional target audience, allows Goldman
(GS.N) to diversify its debt in terms of maturity and investor
base. This is only its second offering of senior unsecured
bonds to somewhat underserved retail investors.
Goldman's last trip to the fixed-rate institutional market
was on July 22, when it printed a US$2.75bn 5.25% 10-year bond
at Treasuries plus 230bp.
Goldman is sole books on the retail trade but, unlike on
institutional offerings, it has enlisted Wells Fargo as
physical books, and Bank of America Merrill Lynch, Citigroup
and UBS as joint leads.
An issuer can also generally get away with a tighter coupon
in retail compared with the institutional market. However,
extra fees for retail distribution cancel the savings out
somewhat. In a self-led institutional bond offering, the firm
keeps most of the economics. In a retail deal, Goldman has to
relinquish some fees to competitors that are better positioned
with retail brokers, such as Wells Fargo, BofA, Citi and UBS.
Price talk on the trade is 6.50%-6.625%. The deal, with
A1/A/A+ ratings, is expected to price today. Proceeds will be
used for general corporate purpose. The notes are redeemable at
par any time on or after November 1 2016. So, although they are
billed as half-century bonds, the securities are callable at
par after five years.
PAST PERFORMANCE MATTERS
This is Goldman's second 50-year bond issue in about a
year. In October last year it hit the market with another
retail-targeted, 50-year senior unsecured bond -- its first
Talked as a US$250m tranche, typical of retail deals, last
year's trade was eventually expanded. Keen on partaking in a
unique security, investors flooded the deal and the tranche
ballooned to US$1.3bn.
That sum the firm might have procured in the institutional
market, but without the extra diversification. Retail investors
comprised most of the book, though institutional investors --
on the hunt for yield last year as this year -- also bought
much of the trade.
Today's deal is expected to take shape similarly.
Goldman's US$1.3bn offering of 52m shares last year priced
to yield 6.125%. Price talk of 6.25% was eventually revised to
6.125%6.25%. The final book was about US$2bn.
This year, however, Treasury yields are more in Goldman's
favour. On October 26, when the deal priced, the 30-year
Treasury, on which the 50-year bond is based, closed at 4.00.
This afternoon they were changing hands at 3.215%, a full 78bp
Investors interested in today's deal will have to give the
firm a pass on earnings, however. Yesterday, Goldman reported a
net loss of US$393m for the third quarter on revenues of
US$3.59bn. Larger-than-expected losses in its investment
banking and lending division, and higher non-compensation
costs, were responsible for much of the quarterly loss.
Meanwhile, investment banking revenues were lacklustre.
"Investment banking revenues declined by 46% sequentially
to $718m versus our expectation of a 34% decline," according to
a Sandler O'Neill research report.
(Timothy Sifert is a senior IFR reporter; Tel: