A 50-Year Debt Offering From Goldman Sachs (GS, MS, JPM)

Goldman Sachs Group Inc. (NYSE: GS) has an amazing bond offering that is selling today with a caveat.  The Goldman Sachs bond issue is $1.3 billion with a 6 1/8% coupon.  What makes this unique is that the maturity date is a whopping 50-year term. The bond offer grew from $250 million on strong demand from investors  and what is most interesting is that this was targeted at individual and private investors.  Institutions were not excluded from the offering and we are awaiting a confirmation of the pricing and deal terms.

This is not a traditional super-long bond issuance.  It is callable, and apparently it is callable at any time after the first call date in five years.  If the spreads were to hold, this would trade at roughly 215 basis points over the Treasury’s 30-Year long bond.  If the bond were called away in five years, the spread to call is about 490 basis points versus the 1.23% for the 5-year Treasury Note.

This is on the heels of other debt deals, and it now seems very likely that Goldman Sachs will be followed by a slew of bank holding companies and brokerage firms if these terms are able to hold.  Morgan Stanley (NYSE: MS) is supposed to be out with a $1.5 billion offering, and J.P. Morgan Chase & Co. (NYSE: JPM) recently had a multi-tranche bond offering that had a 30-year maturity component with a 5 1/2% coupon attached to it.

Many investors are looking for any yield they can, and this bond would generate about $612.50 per $10,000.00 invested per year in taxable income.  If this Goldman Sachs bond were to go 50-years without being called, that $10,000.00 would generate taxable income of $30,625.00 spread out over the full length to maturity.

Buying a 50-year bond today gives a maturity date of 2060, a year by which when yours truly will have probably been long-forgotten and cremated.  Oh well, if Lloyd Blankfein is alive he’d be about 105 years old.

JON C.OGG