The Goldman Sachs Group, Inc. GS priced 6 million shares in the initial public offering (IPO) of its specialty lending unit – Goldman Sachs BDC Inc. – for $20 per share on Tuesday. The financial bigwig said that the unit’s shares will initiate trading on the New York Stock Exchange, under the ticker symbol “GSBD” on Wednesday.
Notably, shares were priced at the low end of the targeted range $20–$21, announced last week. The total proceeds summed to $120 million. Goldman Sachs BDC intends to utilize the proceeds of the offering for repaying a part of its debt under the senior secured revolving credit facility.
Formed in 2012, Goldman Sachs BDC is a business development company investing mainly in middle-market companies in the country. Since its inception up to Dec 31, 2014, the company has originated over $1.27 billion in aggregate principal amount of debt and equity investments. It usually invests $5 million to $50 million in firms across different sectors with a duration of 3 to 10 years.
Amid heightened regulations in the financial sector and declining profits, we see Goldman’s latest move as a strategic one. BDCs have to comply with certain Securities and Exchange Commission rules including maintenance of $1.00 of equity for every $1.00 of debt. Therefore, these companies seem more profitable to banks as their operations are less restricted compared to recent regulatory requirements imposed on banks’ risky lending practices.
Moreover, BDCs are required to distribute minimum 90% of the net income to investors, but are free from paying federal taxes.
Other banking giants which will commence BDCs include Credit Suisse Group AG CS and Morgan Stanley MS.
The joint book running managers for the offering include Wells Fargo Securities, a unit of Wells Fargo & Company (WFC), Citigroup Inc. C and Credit Suisse.
Goldman currently carries a Zacks Rank #3 (Hold).
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