Awards for Excellence 2002
Goldman Sachs
In the past 12 months the world’s largest short-term debt market, the US commercial paper market, has shrunk considerably as the credit ratings of many corporate issuers fell. Most US money market funds are bound by strict investment guidelines that limit the amount they can invest in lower-rated names.
Goldman Sachs, the leading dealer in the US market – closely pursued by Lehman Brothers and Merrill Lynch – responded to this in several ways. First, it kept issuers closely informed of the messages its salesforce was receiving from investors, advising companies to seek other sources of liquidity, including turning to back-up credit bank credit lines whenever they came close to straining the capacity of CP investors. From time to time, the firm might position commercial paper on its books that it believed it would be able to distribute later. And the firm worked on alternative sources of liquidity for clients facing difficulties, notably in the asset backed, Euro-commercial paper and MTN markets.
AT&T provides one example. Once a AA-rated A1/P1 issuer with $20 billion of US commercial paper outstanding, the US telecom company underwent a corporate restructuring, including the spin-off of Lucent, that inevitably cut its credit ratings to the point where it could not possibly sustain $20 billion in outstandings. Goldman Sachs advised it to diversify its short-term funding to European and Asian investors by setting up a $6 billion E-CP programme.
From the start of 2001 the company had anticipated that it wouldn’t be able to sustain its previous level of outstandings on its likely new credit rating. Goldman visited the company in April to discuss an E-CP programme that it proceeded to set up in June. It did a lot of issuing in July, August and September. In fact, AT&T sold $2.25 billion of E-CP in the first three days and had outstandings of up to $5.6 billion by the end of September.
One of the keys to the success of this and other programmes has been Goldman’s specialist investor marketing group, which works closely with the credit department of key investors in the run-up to the launch of a new programme to make sure the name is acceptable. The firm’s strong credit research, as highlighted in Euromoney’s credit research poll in April, is a help here.
Goldman has also worked with other large issuers, such as Ford Motor, which have switched large volumes of short-term funding from traditional commercial paper markets to the fast-growing asset-backed segment.
The firm has also distributed large volumes of one-year notes off MTN programmes. Money-market investors that have shortened the term for holding weaker credits to one month or less have sought one-year notes of stronger issuers to balance their portfolios. The firm has also devised extendible MTNs for credit under pressure, such as car companies, whereby investors purchase one-year notes that are puttable monthly. If the notes are not put, the coupon steps up. “These notes meet the credit and maturity parameters of investors with an incentive to roll over to the issuer’s desired maturity,” says John Delaney, executive director at Goldman Sachs.
Nick Evans
