Jefferies puts maximum loss exposure due to involvement with FXCM at $219.9m

Maria Nikolova

The numbers were revealed in the 10-Q report of Jefferies (ex-Leucadia) for the second quarter of 2018.

Jefferies Financial Group Inc (NYSE:JEF), formerly known as Leucadia National Corporation, has just posted its 10-Q Report for the second quarter of 2018, with the document containing some updates on the investment in FXCM.

These updates, of course, are related to FXCM’s deal with Leucadia from January 2015, when the financial services major entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017 (the term of which was subsequently extended to January 2019). During the six months ended June 30, 2018, Jefferies received $11.8 million of principal and interest from FXCM and $70.4 million of principal remained outstanding under the term loan as of June 30, 2018.

Through June 30, 2018, Jefferies has received cumulatively $343.4 million of principal, interest and fees from its initial $279 million investment in FXCM. This marks a small change from the preceding quarter, when Leucadia said it received cumulatively $339.8 million of principal, interest and fees from FXCM.

Jefferies also updated on its exposure to loss as a result of its FXCM investment. Let’s recall that the this number was $224.1 million at the end of the first quarter of 2018. At the end of the second quarter of the year, the number is a bit lower. In the latest 10-Q report, Jefferies said its maximum exposure to loss as a result of its involvement with FXCM is limited to the carrying value of the term loan ($76.1 million) and the investment in associated company ($143.8 million), which totaled $219.9 million at June 30, 2018.

Jefferies’ investment in FXCM currently consists of a senior secured term loan due January 2019 ($70.4 million outstanding at June 30, 2018) and a 50% voting interest in FXCM and up to 75% of all distributions.

In the meantime, let’s note that the fairness of the Leucadia deal with FXCM from January 2015 has been challenged at the Delaware Chancery Court. The shareholders of FXCM Inc (now known as Global Brokerage Inc) are accusing Dror Niv, William Adhout, Kenneth Grossman, David Sakhai, Eduard Yusupov, James G. Brown, Robin Davis, Perry Fish, Arthur Gruen, Eric Legoff, Bryan Reyhani, and Ryan Silverman of various breaches of their fiduciary duties to FXCM. According to the plaintiff in the case, the Leucadia loan represented a waste of assets and the terms of the transaction were unfair to the broker.

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