Goldman Sachs Group Inc., which yesterday reported its second quarterly loss in 12 years, sold $500 million of 50-year unsecured bonds in a transaction aimed at individual investors.

Goldman Sachs sold the debt in increments of $25 at a yield of 6.5 percent after doubling the size of the offering, according to data compiled by Bloomberg. The New York-based firm has the option to redeem the bonds at par after five years, according to a filing with the Securities and Exchange Commission.

The transaction was the second Goldman Sachs has targeted at individual investors, allowing the firm to diversify its sources of capital while locking in “attractive” borrowing costs, said James Leonard, a credit analyst at Morningstar Inc. in Chicago. Goldman Sachs issued $1.3 billion of 6.125 percent notes with a similar structure a year ago, Bloomberg data show.

“It's a great deal for Goldman,” Leonard said in a telephone interview. “They're sitting in a win-win situation, because if interest rates stay low they can call them, but if rates go up they've got 50 years of funding.”

Leonard said he wouldn't recommend individual investors buy the notes because of the difficulty of valuing Goldman Sachs's option to redeem them after 2016.

Michael DuVally, a spokesman at Goldman Sachs, declined to comment.

Goldman Sachs's third-quarter loss of $393 million, or 84 cents per share, compared with a profit of $1.9 billion, or $2.98, a year earlier, the company said yesterday in a statement.

Credit Swaps Fall

The cost to protect Goldman Sachs's debt for five years using credit-default swaps fell 24 basis points to 321 basis points, according to London-based data provider CMA. It reached 410 basis points on Oct. 4, the highest since October 2008.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.

'Confused and Disappointed'

David Viniar, Goldman Sachs's chief financial officer, told analysts on a conference call yesterday that a widening of the firm's credit spreads over the last six weeks has had a “minimal” impact on its business. He said the firm, which yesterday reported its second quarterly loss in 12 years as a public company, has about $5 billion of debt maturing by year end and “we'll decide as the quarter goes on whether we want to replace it or we want to wait for a better time.”

Goldman Sachs executives have been “confused and disappointed” by the rising prices on the firm's credit-default swaps, Viniar said, which investors use to hedge against losses on the company's debt or to speculate on its creditworthiness.

“Given how strong our capital is, our liquidity is, the maturity of our funding, the balance sheet, we kind of scratch our heads a little bit,” Viniar said. “But it really hasn't affected anything other than our emotions. We don't like seeing it but it hasn't had a big effect.”

Goldman Sachs fell 1.5 percent to $100.79 in New York after reaching $102.25 yesterday, the highest since Sept. 20.

Bloomberg News

Instant Insights /

Goldman Sachs Sells 50-Year Bonds

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