LEHMAN ABS CORP GOLDMAN SACHS CAP 1 SEC BACKED SER 2004-6 (JBK) stock intrinsic value fair value estimate & owner earnings analysis

What this is. JBK is not an operating company. It is the Corporate Backed Trust Certificates, Goldman Sachs Capital I Securities-Backed Series 2004-6 Trust, set up in March 2004 by Lehman ABS Corporation (now SCS LABS Corporation), with U.S. Bank Trust National Association as trustee. It issued 1,000,000 certificates of $25 each and used the $25 million to acquire Goldman Sachs Capital I 6.345% Capital Securities due February 15, 2034. Those securities are backed by junior subordinated debentures of The Goldman Sachs Group, Inc. The trust has no employees and no business. The trustee collects the interest and passes it on, and its distribution statements show nothing kept back for the trustee or the depositor. The value of a certificate therefore depends on one question: will Goldman Sachs keep paying this debt until 2034? Why some quote services show a 3.50% adjustable rate. Under the original March 2004 offering terms, the certificates paid 3.50% until May 2004 and then a floating rate, reset every quarter, of three-month dollar LIBOR plus 0.75%, never below 3.50% and never above 7.50%. The floating rate came from an interest-rate swap with Lehman Brothers Special Financing, guaranteed by Lehman Brothers Holdings. The same terms said that if the swap ended, the certificates would switch to the fixed 6.345% paid by the Goldman securities, on their semi-annual schedule. Lehman Brothers Holdings' bankruptcy filing on September 15, 2008 was an event of default under the swap, and no swap payments have been made in either direction since. The 3.50% figure is a leftover from that original structure and no longer describes what holders receive. What holders receive now. In February 2017 the trust received $793,125 of interest on $25.0 million of Goldman securities and paid all of it to holders. In February 2026 it received $431,333.10 on $13.596 million and again paid all of it out, with no principal distributed. Both amounts work out to exactly 6.345% a year. For a holder that means $0.793 per certificate every February 15 and August 15, or $1.586 a year, and $25 back on February 15, 2034. The trust holds fewer Goldman securities than it did in 2017. That fits the offering terms, which since March 2006 have let holders exchange blocks of certificates for their share of the underlying Goldman securities. It changes nothing for the certificates that remain. The obligor. Goldman Sachs reports $968 million of these junior subordinated debentures outstanding at the end of both 2024 and 2025. They pay 6.345% semi-annually and mature on February 15, 2034. Junior subordinated debt ranks behind Goldman's senior and ordinary subordinated debt, and the ratings reflect that: the trust preferred securities are rated BBB- by Fitch, Baa3 by Moody's and BB+ by S&P, all with stable outlooks. That puts them at the border of investment grade, one or two notches below Goldman's ordinary subordinated debt. Goldman may defer interest for up to ten consecutive semi-annual periods (five years), but while it does so it may not pay dividends on its common stock or make certain repurchases of it. The offering document adds that deferred distributions themselves earn interest at 6.345%, compounded semi-annually. Early redemption. Goldman can redeem the debentures at any time, in whole or in part. It must pay the greater of face value or a make-whole amount, plus accrued interest. The make-whole amount is the remaining payments to 2034 discounted at the Treasury rate plus 0.20%, or plus 0.50% after certain changes in tax or investment-company law. The trust passes redemption proceeds to certificate holders pro rata. Unlike some similar trusts, this one has no call warrant letting a third party acquire the certificates at $25. An early redemption would therefore return at least $25 plus accrued interest, and more than our base value unless Treasury yields rise close to 6%. We give no value to a redemption because nothing in Goldman's filings suggests one is planned. How we valued it. The payments are fixed by contract, so there is no growth assumption to make: 15 remaining semi-annual payments of $0.793 from February 2027 through February 2034, plus $25 at maturity, discounted at 6% in every case. The trust has no borrowings, so nothing is subtracted in any case. Base case, $25.80. Goldman pays every coupon and repays $25 on February 15, 2034, as the trustee's statements show it has kept doing. Because the 6.345% coupon is slightly above our 6% rate, a certificate is worth a little more than its $25 face value. The figure also includes about $0.17 of interest that has built up since the August 15, 2026 payment. Bear case, $25.80. The specific risk the documents name is a deferral, so we tested the longest one the contract allows: Goldman skips every payment from February 2027 through August 2031 and pays everything it owes in February 2032. Because deferred distributions earn 6.345% compounded, the $7.93 of skipped payments would grow to about $9.46 by then. At our 6% rate that stream is worth about $25.88, no less than the base case. A deferral delays the cash but, on these terms, does not reduce its value, so we set the bear case equal to the base case. Our earlier bear case of $24.77 assumed skipped payments would earn nothing; the offering document shows they compound, and that is the only reason the figure changed. A real loss would require Goldman to stop paying this debt altogether. We did not build that into the bear case, because nothing in Goldman's filings points that way and the ratings sit at the investment-grade border; we judge it to be well beyond a 1-in-10 outcome. It is still the real risk. Because this debt ranks near the bottom of Goldman's obligations, holders would stand near the back of the line in a Goldman insolvency. Bull case, $25.80. Nothing can pay more than the contract, apart from a make-whole redemption that nothing in the filings suggests. The certificates carry no equity upside and no claim to Goldman's earnings growth. The best evidenced outcome is that every payment arrives on time, which is the same as the base case. What the certificates appear to be worth. About $25.80 in all three cases. The range is narrow because the payments are fixed, the obligor is strong and the contract compensates holders for a deferral. The return implied from any price is essentially the yield at that price. From the margin-of-safety price of $21, the yield to 2034 implied is about 9.75% a year. A 20% annual rate would be implied only from a price reached during a period of stress followed by a recovery toward face value. The trust is small, with about $13.6 million of face value outstanding, so trading may be thin. What would make this wrong. A serious decline in Goldman Sachs' credit, especially one that ended in a default rather than a deferral. Two features of the trust also matter. The trustee's statements still list the 2004 swap agreement with Lehman Brothers Special Financing, and under the offering terms any swap termination payment would be paid ahead of certificate holders out of redemption proceeds. No such claim appears in the trust's filings, and every statement we reviewed shows the full 6.345% reaching holders. Separately, if Goldman stopped filing reports with the SEC, the trust could be required to dispose of the Goldman securities and pass on the proceeds, which might be less than the remaining payments are worth. Nothing indicates Goldman plans to stop reporting.