Jefferies puts maximum exposure to loss due to FXCM involvement at $131.4m
Jefferies’ maximum exposure to loss as a result of its involvement with FXCM is limited to the carrying value of the term loan ($58.6 million) and the investment in associated company ($72.8 million), which totaled $131.4 million at August 31, 2019.
Jefferies Financial Group Inc (NYSE:JEF), formerly known as Leucadia National Corporation, estimates that its maximum exposure to loss as a result of its involvement with FXCM Group is $131.4 million as of August 31, 2019. This becomes clear from the latest 10-Q filing Jefferies has submitted with the Securities and Exchange Commission (SEC).
The maximum exposure to loss is limited to the carrying value of the term loan ($58.6 million) and the investment in associated company ($72.8 million), which totaled $131.4 million at end-August 2019, Jefferies explains.
FXCM is considered a VIE and Leucadia’s term loan and equity ownership are variable interests. Jefferies has determined that it is not the primary beneficiary of FXCM because it does not have the power to direct the activities that most significantly impact FXCM’s performance. That is why, Jefferies does not consolidate FXCM and accounts for its equity interest under the equity method as an investment in an associated company.
Jefferies has a 50% voting interest in FXCM. Jefferies’ investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2021 ($71.6 million principal outstanding at August 31, 2019), a 50% voting interest in FXCM and a majority of all distributions in respect of the equity of FXCM.
Net revenues from Leucadia’s FXCM term loan include gains of $2.3 million and $1.3 million during the third quarter of 2019 and 2018, respectively. This includes the component related to interest income. Net revenues from the FXCM term loan include gains (losses) of $(8.7) million and $16.4 million during the first nine months of 2019 and 2018, respectively.
