Goldman Sachs Sells $6 Billion Bond, Its Largest to Date

01/16/2013| 05:25pm US/Eastern

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(Adds final pricing details on Goldman bonds in third paragraph and pricing details on Zoetis in final paragraph).

 
   By Patrick McGee 
 

Goldman Sachs Group Inc. (>> Goldman Sachs Group, Inc.) raised $6 billion of cash in the bond markets Wednesday--its biggest bond deal to date, according to Dealogic.

The company pleased investors earlier in the day with a report of quarterly profit that more than doubled from a year earlier.

The three-part deal will mature in three, five and 10 years, offering yields of 1.399%, 2.384% and 3.663%, respectively, or 1.15, 1.65 and 1.85 percentage points more than the yield on comparable U.S. Treasurys. Earlier, the bonds were offering even more yield--an additional 0.05 to 0.10 percentage point--but rates dropped on broad demand.

A term sheet indicates proceeds are destined for general purposes, which suggests the bank doesn't need the cash, but it senses a good opportunity to borrow at low rates, according to market participants.

Borrowing costs for banks have dropped precipitously over the past year, as bond investors have become more comfortable lending cash. When Goldman issued 10-year bonds as part of a $4.5 billion offering a year ago, it paid a fixed-rate coupon of 5.75%. Those bonds yielded just 3.54% Wednesday, indicating the risk-premium investors perceive on the bank has sharply diminished.

Helping out was Goldman's strong earnings report, which pushed its stock up $5.50, or 4.1%, to $141.09.

For some investors, yields have fallen too much. Scott Kimball, portfolio manager of the BMO TCH Corporate Income Fund, said he likes the financial sector because it continues to offer a bigger spread to Treasurys than the industrial sector, but yields on the Goldman bonds aren't compelling enough to purchase, despite the company's stellar earnings. "We do not see it as a cheap offering," Mr. Kimball said.

In terms of size, the $6 billion offering matches last week's deal from Bank of America Corp. (>> Bank of America Corp) as the largest deal out of the gates in 2013.

Companies have been launching multibillion-dollar deals into the high-grade bond markets all month, where investor appetite seems insatiable. The month's issuance so far stands at more than $80 billion, compared with the $88.5 billion sold in all of January last year. The five-year average for the month's volume is $96 billion, according to data provider Dealogic.

Zoetis Inc., the animal-health unit of the pharmaceutical giant Pfizer Inc. (>> Pfizer Inc.), also borrowed $3.65 billion of cash Wednesday as it gears up for an initial public offering.

Zoetis is expected to launch a roughly $4 billion IPO this month or next. If the IPO doesn't happen by Aug. 31, the bonds will be purchased at 101 cents on the dollar.

The four-part deal includes three-, five, 10- and 30-year notes. They were priced to yield between 1.159% and 4.746%.

Write to Patrick McGee at patrick.mcgee@dowjones.com

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