Goldman Said to Make $1.5 Million Error on Ford Bond Issue

The wrong Treasury note was used as the benchmark for Ford's five-years.

Goldman Sachs Group Inc. mistakenly added about $1.5 million of interest costs to a Ford Motor Co. bond sale last week by using the wrong Treasury note as a benchmark for the security, according to two people with knowledge of the transaction.

As compensation, Ford was charged a lower underwriting fee for the offering of $1 billion of five-year, 2.875 percent notes from its finance unit, said one of the people, who asked not to be identified because the information is private. The automaker paid 0.1 percentage point less in fees than in two previous sales of similar-maturity debt, regulatory filings show.

Goldman Sachs, the sixth-largest underwriter of corporate bonds worldwide this year, took Ford public in 1956 and a former executive at the bank, John Thornton, sits on the carmaker’s board. Such an error by the New York-based bank is rare across capital markets, said AllianceBernstein Holding LP’s Ashish Shah, who wasn’t involved in the sale.

“I can’t recall the last time something like this happened,” said Shah, the head of global credit at New York-based AllianceBernstein, which manages $435 billion. “It’s a reminder that this is a human-led process,” he said. “It’s probably something that won’t be repeated for a long time at the firm.”

Michael DuVally, a Goldman Sachs spokesman, and Margaret Mellott at Ford Motor Credit Co. said they couldn’t comment on details of the bond sale. Goldman has raised $141.3 billion for companies in debt offerings this year, according to data compiled by Bloomberg.

Typically, banks set the price of new corporate securities by using Treasury bonds with similar maturities. If the U.S. government issues notes in the middle of the week, underwriters don’t use that security as a benchmark until the following Monday.

For Dearborn, Michigan-based Ford’s Sept. 26 offering, Goldman Sachs added a 1.45 percentage-point spread to the 1.375 percent Treasury note due September 2018 that was auctioned on Sept. 25, Bloomberg data show. Instead, the bonds should have been based off the 1.5 percent security that matures in August 2018.

Ford paid $2.5 million, or 0.25 percent of the bond’s value, to underwrite the sale compared with a 0.35 percent fee in two previous five-year issues, filings show. Other underwriters on last week’s sale included JPMorgan Chase & Co., BNP Paribas SA and Banco Bradesco SA.

 

Bloomberg News

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