Goldman’s $1.07 billion index-linked deal could be sum of two rolls at JPMorgan

By Emma Trincal

New York, Feb. 4 – Sources said that a record-breaking offering that priced last week could be the result of a double rollover.

Goldman Sachs Group, Inc.’s $1.07 billion of leveraged notes due Feb. 23, 2017 linked to a basket of indexes caught the market’s attention for its size, the second biggest structured note deal to price since 2005, as previously reported.

“It is the biggest index-linked note trade ever. It’s a huge deal!” a sellsider said.

The placement agent for that transaction is J.P. Morgan Securities LLC. Goldman Sachs & Co. is the underwriter.

Twin deals

JPMorgan is also the placement agent for two notably similar deals, which happen to be nearly the same size of the new one when added together.

The $1.07 billion notes are linked to a basket consisting of the Euro Stoxx 50 index with a 58% weight, the FTSE 100 index with a 19% weight and the Topix index with a 23% weight.

The structure offers two-times leverage up to a 27% cap and no downside protection, according to a 424B2 filing with the Securities and Exchange Commission.

The two precedent deals almost identical to this one priced last year on Jan. 30.

One was Barclays Bank plc’s $547.56 million of 0% capped return enhanced notes due Feb. 18, 2016 linked to a nearly similar basket. Its components were the same. The 58% weight for the Euro Stoxx 50 remained the same, but the FTSE 100 and the Topix had equal weights of 21%.

The leverage factor and the one-to-one downside exposure were the same as last week’s notes, but the cap was 21.14%.

The Cusip number was 06741UQC1.

The other was $497.53 million of notes issued by Goldman Sachs Group. The terms, maturity date and underlying were the same. The Cusip number was 38148TLP2.

“It’s part of an annual roll at JPMorgan,” a market participant said. “Apparently Goldman got the entire deal this year.”

Bidding process

Why the two rollovers were combined into one large deal under one issuer’s name is anyone’s guess, he said. But competition is probably the answer.

“A distribution entity that puts a transaction up for bid will likely execute on the best price,” he said.

“Look, the cap went up from 21% last year to 27%. Maybe the others couldn’t match that. It’s a competitive environment. They did the right thing for the customer.”

A sellsider speculated as well.

“Maybe the other issuer did not want to take on that size. More likely they went with the issuer that had the best funding spreads,” he said.

Time gap

The two deals added together make for a $1.045 billion notional, which is only $25 million less than the size of the new product.

The timing of the rollover, however, is a little unusual as the newly priced offering settled prior to the maturity of the deals from last year. The pair matures Feb. 18. The large Goldman Sachs deal priced on Jan. 29 and settled on Wednesday.

“The money hasn’t been coming in yet. JPMorgan is probably giving Goldman a bridge loan. They will hold it in inventory and put it in discretionary accounts,” the market participant said.

“These are probably captive accounts. They know the money is there. It’s just a matter of a short-term loan.”

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