Goldman weighs plan for $29 billion of debt set to outlive Libor

Goldman Sachs Group is evaluating what to do with about $29 billion of debt and preferred stock it issued that’s pegged to dollar Libor and doesn’t mature until after the discredited benchmark expires in mid-2023.

The bank is considering buying back obligations via tenders and calls or swapping the securities through exchange offers, as well as amendments to credit agreements or triggering provisions that shift instruments to new benchmarks, according to a presentation released Monday.

Banks around the world have expended significant resources preparing to transition from the London interbank offered rate after global regulators announced plans in 2017 to do away with the benchmark in the wake of a manipulation scandal and as underlying trading informing the rate dried up. Regulators confirmed Friday that most Libor rates, which underpin hundreds of trillions of dollars of assets across five currencies, will be discontinued at the end of 2021, while a few key dollar tenors will continue to be published for an additional 18 months.

A large portion of Goldman Sachs’s $29 billion represents hybrid fixed- to floating-rate products that are currently in fixed-rate periods and include call options before the Libor exposure begins, according to the bank.

“While calling these products would reduce our Libor exposure, this decision involves multiple considerations beyond the transition,” according to the presentation.

One key concern amid the transition is that hundreds of billions of dollars of assets have no viable way of shifting to replacement rates short of a legislative intervention, given the complexities of amending deal documents and the sheer number of parties involved.

Federal Reserve Chairman Jerome Powell last month said national legislation is needed to ensure a smooth shift to alternative benchmarks, while Gov. Andrew Cuomo of New York proposed a similar solution in the state’s budget.

Goldman Sachs said it was reviewing its options for legacy debt and preferred stock in case necessary beyond potential legislative solutions, which the bank said it supports.