End of the road? Global Brokerage to file for Chapter 11, to delist from Nasdaq Global Market

Global Brokerage Inc (NASDAQ:GLBR), formerly FXCM Inc, has last night made a series of important announcements about its future. For starters, the company published a plan to file for bankruptcy – this will be done under Chapter 11, with the case set to last some 60 days. There is also a delisting from the Nasdaq Global Market on the cards, board changes and a complex restructuring agreement.

Global Brokerage and its affiliate, Global Brokerage Holdings, LLC have been engaged in a series of negotiations with an ad hoc group of holders of more than 68.5% of Global Brokerage’s 2.25% Convertible Notes due 2018. As a result of these negotiations, aimed at restructuring the terms of the Current Notes, Global Brokerage, Global Brokerage Holdings, FXCM Group, Leucadia and the Ad Hoc Group have entered into an agreement to restructure the obligations of Global Brokerage and Global Brokerage Holdings pursuant to a prepackaged plan of reorganization (the “Plan”) to be filed under Chapter 11 of the United States Bankruptcy Code. The overall purpose of the Plan is to enable Global Brokerage to extend the maturity on its current debt obligations for five years and restructure its current operations to reduce current expenses.

FXCM Group, as expected, is distancing itself from these matters. Global Brokerage states that FXCM Group is not involved with the Chapter 11 filing. FXCM’s customers and customer funds will not be impacted by the RSA and the Plan, Global Brokerage asserts. Similarly, FXCM’s banking and trading counterparties, service providers, and other business relationships are not to be impacted. FXCM Group is set to continue to operate normally.

Generally, the Plan provides that:

Current Notes will be exchanged for an equal amount of a new series of senior secured notes (the “New Secured Notes”) due five years from Global Brokerage’s emergence from Chapter 11 protection. The New Secured Notes will be guaranteed by Global Brokerage Holdings and accrue cash interest at a rate of 7% with a payment in kind toggle option. The indenture governing the New Secured Notes will not include a convertible feature, but will include certain covenants, including covenants which, subject to certain exceptions, limit the ability of Global Brokerage and Global Brokerage Holdings to incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on assets.

The credit agreement among Global Brokerage Holdings and FXCM Group, as borrowers, and Leucadia, as lender (the “Credit Agreement”), will be amended to provide a twelve-month extension.

The rights of holders of Global Brokerage common stock will be unimpaired.

The operating agreements of Global Brokerage Holdings and FXCM Group will be amended to provide certain covenants that will, among other things, permit certain excess cash generated by FXCM Group and its affiliates to be distributed to Global Brokerage Holdings and, thus, Global Brokerage.

All administrative expense claims, priority tax claims, and priority claims, as well as all undisputed trade obligations, of Global Brokerage will be paid in full.

Regarding the move from the NASDAQ Global Market, Global Brokerage explains that on November 6, 2017, Global Brokerage was notified that Nasdaq that it would remove Global Brokerage from The NASDAQ Global Market. Nasdaq has approved Global Brokerage to transfer its stock to the NASDAQ Capital Market exchange, and the securities will begin trading at the opening of business on November 13, 2017.

In addition, by the end of the 2017 calendar year, Global Brokerage plans to take steps to deregister its common stock under the Securities Exchange Act of 1934, and to halt filing periodic reports with the Securities and Exchange Commission, such as quarterly and annual reports. As a result of deregistration, Global Brokerage expects its annual expenses to be reduced.

At the time of writing of this article, the Delaware Bankruptcy Court and the New York Bankruptcy Court show no notice of any submission by Global Brokerage. The company has not filed any documents with United States Securities and Exchange Commission (SEC) either. It promises to do so on November 13, 2017. The NASDAQ website also shows no changes in Global Brokerage’s listing status apart from those that have been on display since May 2, 2017, which showed the company was not compliant with the Nasdaq Global Market listing requirements.

The Nasdaq Capital Market, formerly the Nasdaq SmallCap Market, is typically focused on early-stage companies with lower market capitalization. It also implies certain standards (albeit not as heavy as those of other markets) for listing, such as requirements for equity, market value of listed securities, and total assets/total revenues.

Global Brokerage has earlier indicated that it may pursue the option of transferring its listing to the Nasdaq Capital Market.