Goldman Sachs 2013 Annual Report Download - page 181

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
both December 2013 and December 2012, subordinated
debt had maturities ranging from 2015 to 2038. The table
below presents subordinated borrowings.
As of December 2013
$ in millions
Par
Amount
Carrying
Amount Rate 1
Subordinated debt 2$14,508 $16,982 4.16%
Junior subordinated debt 2,835 3,760 4.79%
Total subordinated borrowings $17,343 $20,742 4.26%
As of December 2012
$ in millions
Par
Amount Carrying Amount Rate 1
Subordinated debt 2$14,409 $17,358 4.24%
Junior subordinated debt 2,835 4,228 3.16%
Total subordinated borrowings $17,244 $21,586 4.06%
1. Weighted average interest rates 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 $13.94 billion and $16.41 billion, respectively, as of December 2013, and
$13.85 billion and $16.80 billion, respectively, as of December 2012.
Junior Subordinated Debt
Junior Subordinated Debt Held by 2012 Trusts. In
2012, the Vesey Street Investment Trust I and the Murray
Street Investment Trust I (together, the 2012 Trusts) issued
an aggregate of $2.25 billion of senior guaranteed trust
securities to third parties. The proceeds of that offering
were used to fund purchases of $1.75 billion of junior
subordinated debt securities issued by Group Inc. that pay
interest semi-annually at a fixed annual rate of 4.647% and
mature on March 9, 2017, and $500 million of junior
subordinated debt securities issued by Group Inc. that pay
interest semi-annually at a fixed annual rate of 4.404% and
mature on September 1, 2016.
The 2012 Trusts purchased the junior subordinated debt
from Goldman Sachs Capital II and Goldman Sachs
Capital III (APEX Trusts). The APEX Trusts used the
proceeds from such sales to purchase shares of Group Inc.’s
Perpetual Non-Cumulative Preferred Stock, Series E
(Series E Preferred Stock) and Perpetual Non-Cumulative
Preferred Stock, Series F (Series F Preferred Stock). See
Note 19 for more information about the Series E and
Series F Preferred Stock.
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.
The firm has the right to defer payments on the junior
subordinated debt, subject to limitations. During any such
deferral period, the firm will not be permitted to, among
other things, pay dividends on or make certain repurchases
of its common or preferred stock. However, as Group Inc.
fully and unconditionally guarantees the payment of the
distribution and redemption amounts when due on a senior
basis on the senior guaranteed trust securities issued by the
2012 Trusts, if the 2012 Trusts are unable to make
scheduled distributions to the holders of the senior
guaranteed trust securities, under the guarantee, Group Inc.
would be obligated to make those payments. As such, the
$2.25 billion of junior subordinated debt held by the 2012
Trusts for the benefit of investors is not classified as junior
subordinated debt.
The APEX Trusts and the 2012 Trusts are Delaware
statutory trusts sponsored by the firm and wholly-owned
finance subsidiaries of the firm for regulatory and legal
purposes but are not consolidated for accounting purposes.
The firm has covenanted in favor of the holders of Group
Inc.’s 6.345% Junior Subordinated Debentures due
February 15, 2034, that, subject to certain exceptions, the
firm will not redeem or purchase the capital securities
issued by the APEX Trusts or shares of Group Inc.’s
Series E or Series F Preferred Stock prior to specified dates
in 2022 for a price that exceeds a maximum amount
determined by reference to the net cash proceeds that the
firm has received from the sale of qualifying securities.
Goldman Sachs 2013 Annual Report 179