On the heels of its successful initial public offering of stock, Goldman Sachs Group Inc. is finding strong demand for its debt as well.
Goldman has increased its first public bond offering to $1.5 billion, from $1 billion, according to a filing with the Securities and Exchange Commission. Goldman's 10-year global senior notes were launched Monday to institutional investors, the company said. It said it expects the debt to be priced Wednesday.
The bond offering came a week after the investment bank's well-received initial public offering, which raised $3.66 billion of capital. Last Tuesday, in the first day of trading, Goldman's investors bid up the new stock to more than $70 a share, from the offering price of $53.
Observers expect that same demand to carry over to the bonds. Appetite for them will surge as a result of the scarcity of the new paper and Goldman's stature, analysts said.
"The bonds should perform pretty well," said Mark Girolamo, bond analyst at Deutsche Bank Securities in New York. "Investors will have room in their portfolio for a high-quality name like this."
Analysts said they expect the bonds to trade in the range of 105 to 110 basis points over Treasuries. But they may price a few points less than that range, based on investor fervor over the new issue.
The securities are probably going to trade better than their fundamentals would suggest "because of pent-up demand," said John E. Otis, bond analyst at Bear, Stearns & Co.
Much as in its stock offering, analysts said, Goldman will aim to price the bonds to allow room for appreciation once trading starts.
One observer said that would mean pricing with a minimum spread of 105 basis points, allowing the issuance breathing room to move toward 100. "If they want this deal to really work, they will probably want to bring it in behind 105," said the analyst, who asked not to be named.
In addition to raising more capital, the issuance will give Goldman the chance to have public bonds trading versus public investment banks such as Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co.
Much of Goldman's debt is in bonds that were placed when the firm was private. Those private bonds-so-called 144As-are less liquid because the company was not compelled to disclose as much data as a public company.
Now, having to answer to shareholders, Goldman may find its bonds trade more freely. Standard & Poor's has given the bonds an A-plus rating; Moody's Investors Service has issued an A1 rating.
The Goldman bonds are the first stage in the firm's efforts to tap the debt markets. The company plans to issue $1 billion of 10-year notes denominated in euros, according to recent filings with the SEC. The bank also said it will to sell up to $15 billion of medium-term notes within the next two years.
