Goldman eyes debt buy-back opportunity

The news that Goldman Sachs is raising a $10bn fund to buy senior debt backing leveraged buyouts will raise eyebrows considering the performance of the investment bank in the leveraged loan market recently. In June this year Goldman Sachs and four other lenders sold EUR1.1bn of high-yield debt used on the leveraged buyout of Endemol for as little as 70 cents on the dollar, a deal which Goldman Sachs' private equity arm participated in, alongside the Italian commercial television network Mediaset. At the time it was reported that Barclays Capital, which was among the consortium of banks which funded the deal, refused to sell at a discount.

This followed from Goldman Sachs' decision earlier in the year to sell EUR100m of senior debt backing German yachtmaker Bavaria Yachtbau at 65 cents in the euro. A source has confirmed that a portion of this debt was sold as low as 30 cents in the euro. Bavaria Yachtbau was acquired in June 2007 by Bain Capital for EUR1.4bn, with Dresdner Kleinwort providing the debt financing alongside Goldman Sachs.

The investment banks' total debt exposure to the company is now believed to be around EUR350m. The move by Goldman Sachs to set up a dedicated fund has been prompted by exactly the type of discount-selling that the investment bank itself has been forced to get involved in to clean up its books and avoid further potential losses. Acquiring leveraged debt is currently an extremely attractive buying option, with handsome returns on offer.

More recently, RBS sold around £4.2bn worth of leveraged loans to US houses Apollo, TPG and Blackstone, via its debt investing arm GSO Capital. Apollo and GSO have also acquired $5bn worth of debt which funded the purchase of US radio station owner Clear Channel by Bain Capital and Thomas H Lee from RBS, Credit Suisse and Deutsche Bank.

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