Goldman's $70 million leveraged buffered notes tied to S&P drew strong bid due to payout terms

By Emma Trincal

New York, July 12 - Goldman Sachs Group, Inc.'s $70 million issue of 0% leveraged buffered index-linked notes due July 24, 2017 linked to the S&P 500 index was a popular offering due to an attractive structure that combined unlimited upside potential and competitive downside protection, according to sources.

"Seventy million is not bad. It's due to a structure that looks appealing on both ends," a sellsider said.

The payout at maturity will be par plus 1.5 times any index gain. Investors will receive par if the index falls by up to 50% and will lose 2% for each 1% that it declines beyond 50%, according to a 424B2 filing with the Securities and Exchange Commission.

"It's attractive. You have the potential of outperforming in upward and downward markets. And you're not taking a lot of downside risk," a market participant said.

Risk versus reward

"You have a true buffer of 50%, even though leverage is two times beyond that, it's still a lot of protection," the sellsider said.

"The two-times leverage doesn't mean much. If the index is down 55%, you're only losing 10%. That limits your downside risk a lot.

"The upside also looks attractive because you're not capped.

"It's definitely a structure that drives a conversation."

Steve Doucette, financial adviser at Proctor Financial, also said that the terms were fairly competitive.

"Leverage with no cap is always a great thing to have," he said.

"A 50% buffer is huge, and it seems like a good risk/reward.

"You have unlimited upside and a broad downside before you start running into trouble."

For bulls

The uncapped upside was of particular appeal to bulls.

"The S&P is trading at an attractive multiple right now. Five years out, I feel relatively confident that it should be much more than today, and obviously not having a cap on the upside is a very good thing," said Matt Medeiros, president and chief executive of the Institute for Wealth Management.

"It's also nice to know that you can go down as much as 50% without losing principal. Both the absence of a cap and the downside protection makes this note a good candidate for an equity allocation."

Goldman Sachs & Co. is the underwriter.

The notes (Cusip: 38143UY70) priced Monday and will settle July 23.

The fees were 0.35%.

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