Americas Structured Equity House: Goldman Sachs

IFR Review of the Year 2013
5 min read
Stephen Lacey

Once more on top: Goldman Sachs did not just lead more equity-linked issuance than any other bank – it drove issuance too. The use of its own capital helped ensure the bank was on top once again and is IFR’s Americas Structured Equity House of the Year.

Americas Structured Equity House 2013

Structured equity is a tough furrow in which to toil. Issuance volumes are stubbornly low, so a big miss can break an institution’s year, and as the product that can suit both high-grade multinationals and high-tech minnows equally, a miss is almost inevitable – which makes Goldman Sachs’ third year atop the US equity-linked league table all the more remarkable.

Ten out of the 34 transactions in which Goldman was involved were sole bookrunner mandates and the bank was on eight of the top 20 deals in the review period. The bank has created a chasm between it and the next best runner with a market share of 23.4%, versus second placed Morgan Stanley with 14.7%.

New issuance of CBs in the US over the consideration year totalled US$34.1bn, near post-crisis highs and exhibiting acceleration throughout the year. Goldman was present throughout, finishing with US$8bn of business.

The US$1bn sole-bookrun and backstopped CB from was the kind of deal that exemplified Goldman’s year.

In late May, the bank offered the seven-year bonds for the Triple B rated name with a 35bp coupon and 66% conversion premium, knowing that the trade would not clear. But Goldman felt that the deal’s guaranteed inclusion in CB indices and the maturation of outstanding paper meant the bonds would trade up over time, and was willing to back this view.

“Our thesis was that on day 21, day 51, or day 61, the market would have to buy this paper,” said Bennett Schachter, managing director in equity-linked origination. “Long-only funds who have to have a certain amount of investment grade would continue to take in money and – absent any new issuance – they would have to deploy it in the liquid, big names. And that is exactly what has played out.”

A portion of the bonds were sold initially at 98, versus a break-even of 97.5, but they then traded down. Eventually the bonds rose by five points (helped by US$10.1bn of maturities). Nonetheless, Goldman did lose money on the trade, but little, and it showed clients – particularly tech issuers sensitive to selling an equity option too cheaply – that the bank evaluated multi-year paper not just in terms of trade date.

Another notable victory came with SanDisk and its US$1.5bn, seven-year CB that printed in October with a 0.5% coupon and 35% conversion premium, through the aggressive ends of marketed talk. Having previously paid a 150bp gross spread to two bookrunners, including Goldman, on a US$1bn CB in 2010, the flash-memory manufacturer agreed to a sole-bookrun format. The worst-case scenario was that Goldman would get paid the same with base fees of 75bp, but the incentives would take total earnings to 112.5bp.

“This was a situation where the client benefits and Goldman Sachs benefits,” said Vijay Culas, a US West Coast-based managing director of equity-linked origination. “We like incentive fees. Once clients experience our service, they’re going to want to pay us for a job well done.”


It was not just competitors that felt outmanoeuvred.

Arguably one of the firm’s crowning achievements was the US$1bn raised on the sale of convertible debt and equity for Tesla Motors in May. Significant levels of outright interest, combined with the magnitude of the raise, trapped short-sellers forcing them to buy stock in the market and driving an 8.7% run-up in the equity during bookbuilding.

Goldman, lead-left on the sale, focused a one-day marketing effort by targeting long-only investors with 13 one-on-one calls and a group call with over 200 investors. The result was pricing of the US$660m five-year CB at a 1.5% coupon and 35% conversion premium, through the aggressive ends of 2%–2.5% and 30%–35% price talk on what was a US$450m base deal.

Just two days before the end of the IFR Awards period, Goldman alone priced a five-year CB for China-based Sina paying a 1% coupon with a 45% premium. The next day JP Morgan tried to achieve something similar for another Chinese US-listed firm, YY. The deal was pulled.

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