Innovation at Work: Helping a U.S. Thrift Sell Yen-Based Notes in Europe

ThemeS: Clients | Innovation

In 1987, Goldman Sachs co-manages the first-ever collateralized Euroyen notes totaling JPY15 billion for California-based Great American First Savings Bank.

In the mid-1980s, US savings and loans institutions faced headwinds that ultimately would push them into a full-blown crisis, as interest rates rose and they lost deposits to competing, higher-yielding products such as money market funds. One of their challenges was raising debt with low or nonexistent credit ratings.

In 1987, San Diego, California-based thrift Great American First Savings Bank (now defunct) was interested in issuing yen-based debt, but recognized that given the unrated status of the bank’s senior unsecured debt, this would be a challenge: the Japanese Ministry of Finance required all Euroyen issues to have at least a single-A rating.

Goldman Sachs worked with Great American to solve for this issue using a never-before-used security structure: collateralized Euroyen notes with a currency swap. While collateralized debt issues were not new at the time, the Great American transaction represented the first one in which the securities and collateral were in different currencies. The groundbreaking structure afforded the thrift access to relatively inexpensive funds while mitigating the risk of currency fluctuations. Critically, the issue was awarded a rating of Aaa by Moody’s despite the fact that the issuer (Great American) itself was unrated.

Goldman Sachs co-managed the transaction—5-year notes worth JPY15 billion (approximately US$102 million)—along with Mitsubishi Trust & Banking Corp, which also acted as the counterparty for the currency swap. The London office of Nikko Securities lead managed the deal, as the issue was sold in Japan and Europe.

The issuance paved the way for expanded borrowing opportunities abroad for U.S. savings-and-loan institutions and, for Great American, a multi-year push into Japanese markets that included exploring a listing on the Tokyo Stock Exchange. Great American’s 1987 Euroyen issuance was another example of how Goldman Sachs applied its deep knowledge of global markets and transaction structures to solve a client’s challenge in an innovative way.