Zacks_Analysts' Blog : Goldman Sells 10-yr Notes - Analyst Blog

On Wednesday, Goldman Sachs (GS) sold 10-year notes worth $1.25 billion, according to IFR, a Thomson Reuters service. The notes were sold at an issue price of $99.744 each. Investors will get a 6% coupon and the spread is 280 basis points above comparable U.S. Treasuries.

 

The non-callable notes will mature on June 15, 2020. The coupon interest will be paid semi-annually, while the first coupon interest payment is due on December 15, 2010.  Goldman was the sole lead manager of the sale.

 

The notes carry credit ratings of “A1", “A" and “A-PLUS" by Moody’s Corporation (MCO), S&P, and Fitch, respectively.

 

Of late, raising money by issuing notes has become a common market phenomenon.   In March, JPMorgan Chase & Co. (JPM) sold $2.75 billion of notes in a two-part sale.  The sale included $1.50 billion of 10-year notes priced to yield 4.95% and $1.25 billion of 5-year notes priced to yield 3.52%.

 

In January 2010, MorganStanley (MS) issued $4 billion of 5 and 10-year notes in its biggest dollar- denominated debt sale since May.

 

In January, 2010, Nordea Bank AB sold $1.25 billion of 10-year notes. The 4.875% notes were sold at an issue price of $99.452 to yield 4.945%, or 135 basis points over U.S. Treasuries. The joint lead managers for the sale were Bank of America (BAC), Goldman Sachs and JPMorgan.

 

As of March 31, 2010, Goldman’s cash and cash equivalents decreased by $11.23 billion to $27.06 billion. Net cash of $8.47 billion was used in operating and investing activities, primarily to fund securities borrowed and securities purchased under agreements to resell. Net cash of $2.76 billion was used for financing activities, primarily due to repurchases of common stock.

 

Goldman primarily manages capital through issuances and repurchases of common stock. The company also issues or repurchases preferred stock, junior subordinated debt issued to trusts and other subordinated debt as business conditions warrant and subject to any regulatory approval.

Liquidity is of critical importance to companies in the financial services sector, insufficiency of which has led to failures of most financial institutions. Accordingly, Goldman has in place a comprehensive set of liquidity and funding policies that are intended to maintain significant flexibility to address both Goldman specific and broader industry or market liquidity events.

 

Fundamentally, Goldman is poised to grow significantly with its well-diversified business model and a more favorable operating environment. In all, we think Goldman’s sturdy capital and liquidity will lead to increased profitability from newer opportunities once the economy recovers.