Goldman Sachs Offers 50 Year Unsecured Bond, Enjoys High Demand

http://online.wsj.com/article/SB10001424052702303341904575576272129018674.html

By KATY BURNE
NEW YORK—Goldman Sachs Group Inc. sold $1.3 billion of 50-year bonds Tuesday, its longest senior bond ever.

The sale was targeted at private investors rather than institutions, but institutions accounted for about 20% of the buyers. according to a person familiar with the deal, who speculated that the interest could have come from hedge funds.

Until now, Goldman’s longest-dated debt went out 30 years.

The issue was increased from an originally announced $250 million because of strong demand. The bonds were priced to yield 6.125%, compared with initial guidance of 6.125% to 6.250%. In the institutional market, Goldman would have had to pay 6.750%, according to people following the deal.

The senior unsecured bonds are expected to be rated A1 by Moody’s Investors Service, A by Standard & Poor’s and A+ by Fitch Ratings. The minimum purchase for investors was $25, and 52 million of the notes were on offer, up from 10 million when the deal was announced Monday.

The bonds can be redeemed by Goldman at their original face value of $25 at any time after the first five years. Proceeds from the sale will be used for general corporate purposes.

Goldman has sold large offerings of preferred and hybrid securities before, but not senior debt maturing this far out, according to a person familiar with the deal.

The firm served as sole bookrunner on the deal, supported by the retail brokerage arms of Wells Fargo, Bank of America Merrill Lynch, Citigroup and UBS.

Goldman’s most recent U.S. 30-year deal was for $2.75 billion in December 2007, according to Dealogic data, and its most recent sterling-denominated deal was for £325 million ($511.3 million) in January 2008. The firm paid 6.75% and 6.875% in nominal interest on those bonds, respectively. A spokesman declined to comment on the new issue.

More recently, Lloyds Banking Group PLC sold $750 million in 40-year debt aimed at retail buyers with a coupon of 7.75%. This month, a debt offering from J.P. Morgan Chase & Co. featured a tranche of 30-year bonds for $1.25 billion with a coupon of 5.5%. That offer didn’t target retail investors.

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This unsecured bond is a no-brainer for Goldman Sachs. If people are willing to give you money at an interest rate of 6.1% when real inflation figures are much higher than CPI(more than double and triple in some cases), you'd have to be crazy to not go for it. This bond, as the article mentions several times, is aimed at retail investors who are being told by pundits and deflationists that inflation is under control. Unfortunately, it appears that there is high demand for 50 year Goldman debt.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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