Goldman Sachs Group Inc. (GS) sold $101.6 million of structured notes tied to the Standard & Poor’s 500 Index (SPX), its largest offering this year, after increasing the size three times to satisfy demand.
The five-year securities, $70 million of which were issued July 9, yield 1.5 times the gains of the index, with investors risking principal if the S&P 500 falls more than 50 percent, according to a prospectus filed with the U.S. Securities and Exchange Commission. The New York-based bank sold $16.2 million more notes on July 12, $10.1 million additional ones on July 18, and $5.31 million more on July 24, according to the SEC filings.
For the most recent issuance, the bank estimated the value of the securities at $960 per $1,000, down from $976 on July 9. Between July 9 and 24, the S&P 500 fell 1 percent to 1,338.3. The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 14 percent to 20.47 during the same period.
Such notes are “very sensitive” to changes in the volatility of the linked index, said Guus Oonincx, founder of G.O. Capital Markets Consulting Services LLC and a former managing director at ING Financial Group. “That is often the culprit for these pricing differences.”
The price of credit default swaps on Goldman Sachs, which can be used to hedge against losses on the company’s debt or to speculate on creditworthiness, also climbed by about 30 basis points to 302.7 basis points during the two weeks, according to data compiled by Bloomberg. Higher credit risk reduces the value of structured notes, which are securities created by banks that package debt with derivatives.
Tiffany Galvin, a spokeswoman for Goldman Sachs, declined to comment on the note.
The bank distributed the latest securities for a 0.3 percent fee, compared with 0.35 percent for the other three sales, according to the SEC filings.
Goldman Sachs’s second-largest offering, on March 27, was $100 million of one-year notes linked to the Dow Jones-UBS Commodity Index.