GS Finance’s $25.03 million autocallable on Russell offers right timeframe, high gearing

By Emma Trincal

New York, March 13 – GS Finance Corp.’s $25.03 million of 0% trigger autocallable gears due March 9, 2027 linked to the performance of the Russell 2000 index provide investors with the appropriate timeframe to take advantage of a strong leverage multiple, according to a market participant.

If the index closes at or above its initial level on March 11, 2025, the notes will be automatically called at par plus 10%, according to a 424B2 filing with the Securities and Exchange Commission.

If the notes are not called and the index finishes at or above its initial level, the payout at maturity will be par plus 2.47 times the index gain.

If the index declines but finishes at or above its 75% downside threshold level, the payout will be par. Otherwise, investors will lose 1% for every 1% that the index’s final level is below its initial level.

Terms

“You’re getting some pretty high leverage, almost 2.5x and still get 25% in downside protection. If you get out in one year, 10% is a good return. Either way, it’s an attractive win-win,” the market participant said.

He also liked the tenor of the notes.

“If you’re not called, it’s better to have two years ahead of you rather than just one. Those catapults are more attractive with a three-year maturity than two. In fact, we always tend to do four-year notes with a one-year call.”

The term catapult designates notes with a one-time autocall, which offer, if the call does not occur, uncapped leverage at maturity. The autocall is usually set at the end of the first year. By definition the underlying is negative if the call is missed. Therefore, the remaining time to maturity will determine the odds of recovery, he explained.

Two versus four

“If you had priced a note during the onset of Covid four years ago, you would have done very well on a two-year mark but much better on a four year,” he said.

“We did a four-year worst-of with a one-year call and a 20% buffer. We got a 125% participation. The same deal on a three year only gave us 105%. The tenor makes a big difference.

“However, the three-year term here is enough especially on the Russell because this index has relatively underperformed.”

Constructive payout

A sellsider said that advisers are increasingly bidding on catapults similar to the GS Finance offering, with one underlying index and one call after the first year.

“Those catapults have become a very popular structure. Right now, they’re done on a single index, but who knows; issuers may apply the payout to single stocks. I don’t see why not,” he said.

“You could not offer uncapped leverage on a two-year. But when you add a one-time call feature, now your payout gets exponentially bigger and the cap at maturity disappears.

“You can do a 2x without a cap on a two-year with protection.

“Because volatility is tight, issuers are not providing eye-popping returns, but if you do that catapult structure, you get very positive results.”

Various views

The structure could also be used by a variety of investors having different views.

“If you’re down on year one, you can play the market rebound,” he said.

“It works if you have a bearish or slightly bullish view.

“If the market is up only a little, you get called and your call premium outperforms the underlier.

“If you’re bearish, you miss the call, but you may have a shot at getting the leverage, no-cap at maturity.

“It’s only if you see the market taking off soon that you shouldn’t do this.”

The notes are guaranteed by Goldman Sachs Group, Inc.

Goldman Sachs & Co. LLC is the underwriter with UBS Financial Services Inc. as selling agent.

The notes settled on March 7.

The Cusip number is 36267H518.

The fee is 1%.

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