Goldman Sachs 2007 Annual Report Download - page 114

Notes to Consolidated Financial Statements
pay dividends on or make certain repurchases of its common
stock. The Trust is not permitted to pay any distributions on
the common beneficial interests held by the firm unless all
dividends payable on the preferred beneficial interests have
been paid in full. These debentures are junior in right of payment
to all of the firm’s senior indebtedness and all of the firm’s
subordinated borrowings, other than the junior subordinated
debt issued in connection with the Normal Automatic Preferred
Enhanced Capital Securities (see discussion below).
JUNIOR SUBORDINATED DEBT ISSUED TO TRUSTS IN CONNECTION
WITH FIXED-TO-FLOATING AND FLOATING RATE NORMAL
AUTOMATIC PREFERRED ENHANCED CAPITAL SECURITIES. In the
second quarter of 2007, the firm issued a total of $2.25 billion
of remarketable junior subordinated notes to Goldman Sachs
Capital II and Goldman Sachs Capital III (the Trusts), Delaware
statutory trusts that, in turn, issued $2.25 billion of guaranteed
perpetual Automatic Preferred Enhanced Capital Securities
(APEX) to third parties and a de minimis amount of common
securities to the firm. The firm also entered into contracts with
the Trusts to sell $2.25 billion of perpetual non-cumulative
preferred stock to be issued by the firm (the stock purchase
contracts). The Trusts are wholly owned finance subsidiaries
of the firm for regulatory and legal purposes but are not
consolidated for accounting purposes.
The firm pays interest semiannually on $1.75 billion of junior
subordinated notes issued to Goldman Sachs Capital II at a fixed
annual rate of 5.59% and the notes mature on June 1, 2043.
The firm pays interest quarterly on $500 million of junior
subordinated notes issued to Goldman Sachs Capital III at a
rate per annum equal to three-month LIBOR plus .57% and
the notes mature on September 1, 2043. In addition, the firm
makes contract payments at a rate of .20% per annum on the
stock purchase contracts held by the Trusts. The firm has the
right to defer payments on the junior subordinated notes and
the stock purchase contracts, subject to limitations, and therefore
Subordinated Borrowings
Unsecured long-term borrowings include subordinated borrowings
with outstanding principal amounts of $16.32 billion and
$7.51 billion as of November 2007 and November 2006,
respectively, as set forth below.
SUBORDINATED NOTES. As of November 2007, the firm had
$11.23 billion of subordinated notes outstanding with maturities
ranging from fiscal 2009 to 2037. The effective weighted
average interest rate on these subordinated notes was 5.75%,
after giving effect to derivative contracts used to convert fixed rate
obligations into floating rate obligations. As of November 2006,
the firm had $4.67 billion of subordinated notes outstanding with
maturities ranging from 2007 to 2036 and with an effective
weighted average interest rate of 6.24%. These notes are junior
in right of payment to all of the firm’s senior indebtedness.
JUNIOR SUBORDINATED DEBT ISSUED TO A TRUST IN CONNECTION
WITH TRUST PREFERRED SECURITIES.
The firm issued $2.84 billion
of junior subordinated debentures in its first quarter of 2004
to Goldman Sachs Capital I (the Trust), a Delaware statutory
trust that, in turn, issued $2.75 billion of guaranteed preferred
beneficial interests to third parties and $85 million of common
beneficial interests to the firm and invested the proceeds from
the sale in junior subordinated debentures issued by the firm.
The Trust is a wholly owned finance subsidiary of the firm
for regulatory and legal purposes but is not consolidated for
accounting purposes.
The firm pays interest semiannually on these debentures at
an annual rate of 6.345% and the debentures mature on
February 15, 2034. The coupon rate and the payment dates
applicable to the beneficial interests are the same as the interest
rate and payment dates applicable to the debentures. The firm
has the right, from time to time, to defer payment of interest
on the debentures, and, therefore, cause payment on the Trust’s
preferred beneficial interests to be deferred, in each case up to
ten consecutive semiannual periods. During any such extension
period, the firm will not be permitted to, among other things,
The effective weighted average interest rates for unsecured long-term borrowings are set forth below:
As of November
2007 2006
($ in millions) Amount Rate Amount Rate
Fixed rate obligations $ 3,787 5.28% $ 1,997 6.13%
Floating rate obligations
(1) (2)
160,387 5.68 120,845 5.75
Total $164,174 5.67 $122,842 5.75
(1) Includes fixed rate obligations that have been converted into floating rate obligations through derivative contracts.
(2)
The weighted average interest rates as of November 2007 and November 2006 excluded financial instruments accounted for at fair value under SFAS No. 155 or
SFAS No. 159.
112 Goldman Sachs 2007 Annual Report