Goldman Sachs 2012 Annual Report Download - page 173

Notes to Consolidated Financial Statements
Subordinated Borrowings
Unsecured long-term borrowings include subordinated debt
and junior subordinated debt. Junior subordinated debt is
junior in right of payment to other subordinated
borrowings, which are junior to senior borrowings. As of
December 2012 and December 2011, subordinated
debt had maturities ranging from 2015 to 2038 and
2017 to 2038, respectively. The table below presents
subordinated borrowings.
As of December 2012 As of December 2011
$ in millions
Par
Amount
Carrying
Amount Rate 1
Par
Amount
Carrying
Amount Rate 1
Subordinated debt 2$14,409 $17,358 4.24% $14,310 $17,362 4.39%
Junior subordinated debt 2,835 4,228 3.16% 5,085 6,533 2.43%
Total subordinated borrowings $17,244 $21,586 4.06% $19,395 $23,895 3.87%
1. Weighted average interest rate after giving effect to fair value hedges used to convert these fixed-rate obligations into floating-rate obligations. See Note 7 for
further information about hedging activities. See below for information about interest rates on junior subordinated debt.
2. Par amount and carrying amount of subordinated debt issued by Group Inc. was $13.85 billion and $16.80 billion, respectively, as of December 2012, and
$13.75 billion and $16.80 billion, respectively, as of December 2011.
Junior Subordinated Debt
Junior Subordinated Debt Issued to APEX Trusts. In
2007, Group Inc. issued a total of $2.25 billion of
remarketable junior subordinated debt to Goldman Sachs
Capital II and Goldman Sachs Capital III (APEX Trusts),
Delaware statutory trusts. The APEX Trusts issued
$2.25 billion of guaranteed perpetual Normal Automatic
Preferred Enhanced Capital Securities (APEX) to third
parties and a de minimis amount of common securities to
Group Inc. Group Inc. also entered into contracts with the
APEX Trusts to sell $2.25 billion of Group Inc. perpetual
non-cumulative preferred stock (the stock purchase
contracts). See Note 19 for more information about the
preferred stock that Group Inc. has issued in connection
with the stock purchase contracts.
The firm accounted for the stock purchase contracts as
equity instruments and, accordingly, recorded the cost of
the stock purchase contracts as a reduction to additional
paid-in capital.
During the first quarter of 2012, pursuant to a remarketing
provided for by the initial terms of the junior subordinated
debt, Goldman Sachs Capital II sold all of its $1.75 billion
of junior subordinated debt to Murray Street Investment
Trust I (Murray Street Trust), a new trust sponsored by the
firm. On June 1, 2012, pursuant to the stock purchase
contracts, Goldman Sachs Capital II used the proceeds
of this sale to purchase shares of Group Inc.’s Perpetual
Non-Cumulative Preferred Stock, Series E (Series E
Preferred Stock).
During the third quarter of 2012, pursuant to a
remarketing provided for by the initial terms of the junior
subordinated debt, Goldman Sachs Capital III sold all of its
$500 million of junior subordinated debt to Vesey Street
Investment Trust I (Vesey Street Trust), a new trust
sponsored by the firm. On September 4, 2012, pursuant to
the stock purchase contracts, Goldman Sachs Capital III
used the proceeds of this sale to purchase shares of Group
Inc.’s Perpetual Non-Cumulative Preferred Stock, Series F
(Series F Preferred Stock).
In connection with the remarketing of the junior
subordinated debt to the Murray Street Trust and Vesey
Street Trust (together, the 2012 Trusts), pursuant to the
terms of the junior subordinated debt, the interest rate and
other terms were modified. Following such sales, the firm
pays interest semi-annually on the $1.75 billion of junior
subordinated debt held by the Murray Street Trust at a
fixed annual rate of 4.647% and the debt matures on
March 9, 2017 and on the $500 million of junior
subordinated debt held by the Vesey Street Trust at a fixed
annual rate of 4.404% and the debt matures on
September 1, 2016. To fund the purchase of the junior
subordinated debt, the 2012 Trusts issued an aggregate of
$2.25 billion of senior guaranteed trust securities. The 2012
Trusts are required to pay distributions on their senior
guaranteed trust securities in the same amounts and on the
same dates that they are scheduled to receive interest on the
junior subordinated debt they hold, and are required to
redeem their respective senior guaranteed trust securities
upon the maturity or earlier redemption of the junior
subordinated debt they hold. Group Inc. fully and
unconditionally guarantees the payment of these
distribution and redemption amounts when due on a senior
basis and, as such, the $2.25 billion of junior subordinated
debt held by the 2012 Trusts for the benefit of investors is
no longer classified as junior subordinated debt.
Goldman Sachs 2012 Annual Report 171