Goldman Sachs 8-K: 6.500% Series AA Preferred Stock Terms

NEW YORK — The Goldman Sachs Group filed a Form 8-K on July 27 that sets out the terms of a new perpetual preferred security, the 6.500% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series AA. A Goldman Sachs 8-K of this kind is routine plumbing for a large bank’s capital stack, but the document shows how the firm is pricing its most junior regulated capital.

What the filing says

On July 23, Goldman filed a certificate of designations with the Delaware Secretary of State creating Series AA with a liquidation preference of $25,000 per share and 100,000 authorized shares. The securities will be sold as depositary shares, each representing a one-twenty-fifth interest in a preferred share, under an existing shelf registration on Form S-3. An opinion from Sullivan & Cromwell covers 2,500,000 depositary shares, which at $1,000 each corresponds to the full authorized amount of $2.5 billion.

The 8-K also reports under Item 3.03 that once Series AA is issued, Goldman’s ability to pay dividends on or repurchase its common stock will be restricted if it fails to pay dividends on the series.

Dividend and reset terms

Dividends are non-cumulative and payable only when declared by the board or its securities issuance committee, on February 10 and August 10 of each year, starting February 10, 2027. The rate is a fixed 6.500% per year until August 10, 2031. From that date the rate resets in each reset period to the five-year Treasury rate plus 2.175%.

Non-cumulative means that a skipped dividend is gone for good; holders cannot claim it later.

Redemption

Series AA is perpetual with no maturity date and no sinking fund. Goldman can redeem it in whole or in part on any dividend payment date on or after August 10, 2031, at $25,000 per share plus declared but unpaid dividends. It can also redeem it in whole, within 90 days of a regulatory capital treatment event. Where capital rules require it, Goldman needs prior approval from its federal banking regulator.

Holder rights

Series AA holders have no general voting rights. If dividends go unpaid for periods totaling at least 18 months, whether or not consecutive, the board gains two seats that preferred holders elect with other voting preferred stock.

Place in the capital stack

Series AA ranks senior to Goldman’s common stock and to any series designated as junior stock, and equally with parity stock, in both dividends and liquidation. The cover page of the 8-K shows what already sits in that part of the structure: depositary shares for floating-rate Series A, C and D preferred, along with two capital securities issued through Goldman Sachs Capital II and III, all listed on the New York Stock Exchange.

Why it matters

Banks use non-cumulative preferred stock to meet regulatory capital requirements without diluting common shareholders. For readers tracking investment bank balance sheets, the 6.500% coupon and the 2.175% reset spread are the two figures that establish what Goldman pays for this capital.

What to watch

Goldman’s next quarterly report will show how the new series changes its preferred equity, and any redemption notices on older series would show how the firm is managing the stack.