$21.00
$25.00
bear $21.00
base $23.60
bull $25.00
margin of safety $19.00
market price* $23.22
What this is. PYT is not an operating company. It is a trust set up by Merrill Lynch in July 2004 that holds $35 million of Goldman Sachs Capital I 6.345% capital securities due February 15, 2034. Those securities are backed by junior subordinated debt of The Goldman Sachs Group, Inc. The trust issued 1,400,000 certificates at $25 each. Through an interest-rate swap with a Merrill Lynch entity (now part of Bank of America), the trust hands the swap counterparty the fixed 6.345% it receives from Goldman. In return, certificate holders get a floating rate reset every quarter. Under the 2004 offering document that rate is three-month dollar LIBOR plus 0.85%, never below 3.00% and never above 8.00% a year, paid on the 15th of February, May, August and November. Each certificate is owed $25 back at the scheduled final distribution on February 15, 2034. There is no business to grow. What an owner gets is a contract, so we value it from the contract's cash flows, discounted at 6%. What it has been paying. The trust's recent distribution reports show $443,950 paid to certificate holders in February 2026, $402,967 in May 2026 and $435,256 in August 2026, with the full $35 million still outstanding. Per certificate that is about $0.32, $0.29 and $0.31 a quarter, which works out to roughly 4.7% to 5.0% a year, or about $1.20 per certificate annually. LIBOR stopped being published in 2023. The annual report does not say which rate replaced it. The recent payments match a SOFR-based replacement plus the original margin, but we could not confirm the exact formula from the trust's own filings. Our cases therefore rest on the rates actually paid plus the contractual 3% floor and 8% cap. The trust files no income statement or cash-flow statement, so there is no multi-year earnings record to average. The payment stream set by the contract takes that role here. Base case, about $23.60 per certificate. The rate stays near its latest level of about 4.8% until 2034. Goldman keeps paying, and holders receive $25 in February 2034. The value is a little below $25 because a 4.8% coupon falls short of our 6% required return. Bear case, about $21.00. Short-term rates fall far enough to push the certificate onto its 3% floor from early 2027 until maturity, which works out to $0.75 a year per certificate. This is not a far-fetched scenario. Short-term rates stayed near zero for most of 2009 to 2015 and again in 2020 and 2021, and the floor would have applied in those periods. The floor is also what holds up the bear case: even at the minimum rate plus repayment of principal, the stream is worth about $21 at 6%. We did not build a Goldman default or payment deferral into the bear case. Goldman may defer interest on these securities for up to ten consecutive semiannual periods. It has never done so on this issue, and a deferral or default is far less likely than a 1-in-10 outcome. Holders should still understand where they stand: this is junior subordinated debt, so in a Goldman insolvency it ranks behind secured and senior creditors, and the swap counterparty's termination claim is paid before certificate holders. Bull case, $25.00. Short-term rates return to 2023 and 2024 levels, which pushes the certificate rate to about 6.4%. At that level the cash flows would be worth about $26. But since August 2009 a third-party call-warrant holder has been able to acquire the certificates at $25 plus accrued distributions, and it can be expected to do so whenever they are worth more than that. The same applies if the swap ends and holders fall back to the 6.345% fixed rate. The upside is therefore capped at about par. Holders give up the gains but keep the risk of lower rates. What it appears to be worth, and what would make this wrong. Our base value is about $23.60 per certificate, in a band of $21 to $25. The value moves with only two things: the path of short-term interest rates and Goldman Sachs' ability to pay its junior subordinated debt. The analysis would be wrong if the post-LIBOR rate formula differs materially from what recent payments imply, if Goldman redeemed the underlying securities early on terms that leave certificate holders with less than $25, or if Goldman's credit deteriorated enough to make a deferral realistic. Because the upside is capped near $25 and the downside is set mainly by the 3% floor, the margin-of-safety price is set well below the bear value. That is the only way a capped instrument can plausibly imply a high annual return. From $19, the floor-rate stream plus repayment of par implies roughly 7% to 8% a year to 2034. A return of rates toward today's level would imply a value near $23 to $24 within one or two years.