Leucadia estimates FXCM’s “rescue” has generated $353m thus far

Maria Nikolova

FXCM paid off $93 million of Leucadia’s senior secured loan in 2017, says Leucadia.


Leucadia National Corp. (NYSE:LUK) which provided a $300 million back in early 2015 to FXCM has published some performance metrics for the final quarter of 2017, with our attention pinned on what Leucadia has to say about its relationship with FXCM.

In its report (the detailed one has yet to be published with SEC), Leucadia says that its $300 million “rescue” of FXCM has so far generated $353 million of principal, interest, and fees back to Leucadia.

Leucadia estimates FXCM paid off $93 million of its senior secured loan in 2017, with $70 million remaining outstanding, and Leucadia will receive up to 75% of future cash distributions after the loan is fully repaid.

However, Leucadia admits that FXCM had a challenging 2017. In addition to unusually low volatility throughout the year which adversely impacted revenues, in February, FXCM completed regulatory settlements with the National Futures Association and the Commodity Futures Trading Commission that involved FXCM agreeing to withdraw from the US retail FX sector and pay a fine.

Meanwhile, the terms of what Leucadia calls a “rescue” of FXCM, that is, the loan extended to FXCM after the January 15, 2015 events, have attracted the attention of the Delaware Court of Chancery. In a Memorandum Opinion issued on September 29, 2017, Vice Chancellor Sam Glasscock III said entire fairness review is appropriate with regard to the Leucadia deal.

The Court is examining a case brought by a stockholder of FXCM Inc, which is now known as Global Brokerage Inc (OTCMKTS:GLBR). The questions before the Court include whether the Leucadia loan represented a waste of assets and whether the terms of the transaction were unfair to the broker.

The Court said that the plaintiff played down the urgency with which the FXCM Board had to act when having to decide on the potential deal, but the Court supported a review of the Leucadia transaction.

“I have found it reasonably conceivable that entire fairness review is invoked here. Under that standard of review, it is appropriate that I examine the transaction with a full record”, said Vice Chancellor Glasscock.

The “entire fairness standard” is triggered in cases where a majority of the directors approving the transaction are interested or where a majority stockholder stands on both sides of the transaction. When the entire fairness standard is applied, the corporate board has the burden to demonstrate that the transaction is inherently fair to the stockholders by demonstrating both fair dealing and fair price.

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