Liberty Dev Corp- GS 531127AC2
April 25, 2014 - 3:05pm EST by
2014 2015
Price: 110.00 EPS $0.00 $0.00
Shares Out. (in M): 1,250K P/E 0.0x 0.0x
Market Cap (in $M): 1,250K P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 1,250K TEV/EBIT 0.0x 0.0x

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  • Malone
  • Undervalued Bond
  • Municipal bonds


This may be one of the shortest write-ups, but it should be pretty clear why.  Liberty Development Bonds, guaranteed by Goldman Sachs (same rating as corporated debt if A-/Baa1/A), issued via a New York City municipal conduit to build the 'new' GS HQ.
CUSIP is 531127AC2.  Coupon is 5.250, issued in 2005 with a maturity 10/1/2035. Interestingly, they were issued at 110.7 (close to the same price as today), yet nearly 10 years on (so moved down the yield curve a bit) + interest rates are lower + tax rates are higher + Obamacare taxes - and you can still buy the debt for the same price!
They are triple tax exempt, yield 4.4% (which is 9% pre-tax if you live in NYC/NY or around 8% if you are top tax bracket outside the state).  GS has taxable bonds that yield 4.8% due 2033, so can see that you are basically almost getting a tax-exempt issue at a taxable rate.  Other advantages are that this essentially noncallable (make whole at 25bps less than the AAA curve, so you'd be better off if they called them), compared to other muni issues that becoming callable at par after 10 years (may be the equivalent of 50bps) and a $1.25bn issue (so there is liquidity to purchase).  
Another advantage of this debt is that is not back by a municipality / government.  While I tend to agree with the theory that munis are pretty safe, the past recession, decline in taxes, stress on property values and bankruptcies (i.e. Detroit) + likely adverse outcome in Puerto Rico shows that municipalities aren't as safe as one would hope.  Perusing thru available bonds that have similar characteristics the the GS munis (noncallable, A- or higher credit, etc, 20 year +/- maturity) shows comps around 3 - 3.6% (i.e. excluding insured Puerto Rico, etc).  Assuming 3.3% is about right for this debt (i.e. tax equivalent of 6.7% in NYC or 5.8% out of state, still better than the taxable bonds and in the middle of the comps would suggest fair value for the debt of 130.  So, getting this debt at about 15% off fair value.
I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


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