GS Finance’s $3.24 million autocalls on S&P 500 offer longer-dated version of ‘catapult’ play

By Emma Trincal

New York, June 21 – GS Finance Corp.’s $3.24 million of 0% autocallable buffered index-linked notes due June 22, 2028 linked to the S&P 500 index revisit a fashionable structure dubbed “catapult” by extending tenor and call periods to generate more leverage and more protection.

The notes will be automatically called at par plus 20% if the index closes at or above its initial level on June 24, 2025, according to a 424B2 filing with the Securities and Exchange Commission.

If the notes are not called and the index return is positive, the payout at maturity will be par plus 225% of the index gain.

Investors will receive par if the index falls by up to 20% and will lose 1% for each 1% loss beyond 20%.

Those structures named in market jargon “catapults” offer a one-time autocall and if no call occurs, uncapped leveraged upside at maturity with barrier protection on the downside. Those products hit the market two or three years ago as short-term notes, typically with a two-year tenor, a market participant said.

Since then, the typical tenor for those “catapults” has been three years with a one-time automatic call at the end of the first year, according to data compiled by Prospect News.

Umbrellas in the desert

The GS Finance note contrasts significantly with most similar products, this market participant said.

“First, the longer tenor – five versus three years – and second, the longer call period, which jumps from one to two years. These are different characteristics,” he noted.

Other differences result from those extended durations. One is the higher leverage factor if the notes mature – 2.25x versus lower multiples on shorter notes; another variation is the use of a buffer for the protection, which replaces the typical 80% or 70% barrier over three years, he noted.

“The reason they can price such a big buffer is because it’s cheap. And it’s cheap because you’re not likely to need it,” he said.

“The odds are very small that over a five-year period, the market would be down more than 20%. It’s almost like getting a free protection.”

Moreover, extending the call period from one to two years cheapened the cost of the leverage at maturity.

“Most of the people who buy those catapults buy them for the coupon, not for growth. If you have a two-year call, you’re more likely to get your coupon than on a one-year call. So, your chances of taking advantage of the leverage are much lower. That makes the leverage cheap, so you can get a lot of it,” he said.

Opportunity calling

But the longer call period is a plus if the goal for investors is indeed to collect the premium rather than levering up gains at maturity.

“A lot can happen in a year, especially with the stock market near all-time highs,” he said.

“The two-year call period works to your advantage. The longer you go, the more likely you will get called, and therefore the greater the chances of collecting your coupon.

“You’re actually better off betting on a two-year call at 20% than on a one-year call at 10%.”

There may be a variety of reasons behind the unusual five-year pricing for this type of structure, he said.

“The investor dictates the terms. Some may want a longer duration; some may want more protection. It totally depends on the client,” he said.

Checking all boxes

A distributor pointed to the 0.65% underwriting discount, which is disclosed in the prospectus.

“It priced very tightly, which helps the economics,” he said.

The leverage was high, but the options used to price it were probably cheap, he added.

“If you don’t get called after two years, meaning the market is negative after two years, you’re less likely to fully benefit from the 2.25x leverage at maturity because the market may still be down, or if it’s not down, it may not be up a whole lot.”

For this distributor, various types of investors buy those hybrid structures for different reasons.

“I’m not sure why people buy these types of notes.... if it’s for the coupon or the uncapped leverage. I don’t think they’re betting on one scenario versus the other. They see the structure as giving them two opportunities. It’s the combination of both that’s attractive,” he said.

Overall, each potential investor has to consider a set of three parameters, he said, citing the call premium or coupon; the leverage multiple; and the downside protection.

“This structure is attempting to check mark all three,” he said.

“Your 20% buffer is very attractive. You may think that it’s not necessary to have that much protection on a five-year period. But for risk-averse investors sitting on the sidelines, having that amount of safety can be an incentive to get equity exposure.

“The 20% call premium on a two-year is also attractive. Any time you provide a double-digit return, you will get someone’s attention. And the 2.25 times leverage obviously can be very attractive especially if you need to make up for the losses of the first two years.”

The notes are guaranteed by Goldman Sachs Group, Inc.

Goldman Sachs & Co. LLC is the agent.

The notes settled on Tuesday.

The Cusip number is 40057T6X7.

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