Goldman Sells Uridashi Notes (BAC) (GS)

Zacks

According to a filing with Japan’s finance ministry, The Goldman Sachs Group Inc. (GS) announced to sell 5-year Uridashi bonds in Yen. Uridashi notes are debt issued in the euro markets and are sold mostly to the Japanese individual investors.

Goldman will sell the 3- year issue worth 22.3 billion Yen ($286 million). The bonds will be sold at a coupon rate of 1.71%, which are expected to increase by 10 basis points annually to 2.11% till maturity.

In September, Goldman also announced the sale of its 15-year bonds with a coupon rate of 5.9% and maturity value of $20 million. These notes have their maturity date on September 13, 2026.

Moreover, in August, Goldman announced the sale of its 15-year senior unsecured notes with a maturity value of $10 million as of September 1, 2026. The coupon rate for these notes is 6.05%. Goldman also announced the redemption of floating coupon notes with a maturity value of $32 million. These notes, having their maturity date as of July 18, 2012, command a redemption price of 68.53% of the remaining amount.

The proceeds from the offering are intended to be used for general corporate purposes. Moreover, Goldman may use the proceeds for the repayment of outstanding debt securities. This, in turn, will reduce the company’s debt burden.

In June, among Goldman’s peers, Bank of America Corporation (BAC) sold 3-year Uridashi notes in Australian dollars as well in South African Rand (ZAR). BofA sold the 3- year issue worth 413.8 million Rand ($61.1 million). The notes were sold at a coupon rate of 7.05%, which are expected to increase by 10 basis points after December 27, 2011 till maturity. The bonds will mature on June 27, 2014.

Besides, BofA also sold 3- year issue worth A$ 218 million ($232.1 million). The notes were sold at a coupon rate of 5.32%, which would increase by 10 basis points after December 27, 2011 till maturity. The bonds are scheduled to mature on June 27, 2014.

Earnings Recap

Goldman reported third-quarter 2011 loss per share of 84 cents compared with earnings of $2.98 in the prior-year quarter and $1.85 in the prior quarter. However, the Zacks Consensus Estimate was a loss of 6 cents.

Coupled with the global macro-economic concerns, the results deteriorated driven by decrease in revenue and poor performance in all the revenue divisions. However, lower operating expenses partially offset the decline.

Total revenue of Goldman decreased 51% from the prior quarter and 60% year over year to $3.6 billion. Revenue also missed the Zacks Consensus Estimate of $5.6 billion, primarily resulting from a decrease in client activity level driven by uncertain economic conditions.

Our Take

The sell of notes will provide the company financial flexibility at this point of time. We anticipate that these restructuring initiatives to reduce balance sheet risk. Nevertheless, Goldman is facing major challenges with respect to competition and is gradually regaining its industry-leading position.

Goldman currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. Also, considering the fundamentals, we are maintaining a long-term Underperform recommendation on the stock.

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