Currency Trader Faces Onerous Loan Terms

FXCM survived the strengthening of the Swiss franc, but will it survive the loan that bailed out the company?
Katie Kuehner-HebertJanuary 20, 2015
Currency Trader Faces Onerous Loan Terms

Currency trader FXCM is saved, but at what price?

FXCM on Monday released details of its $300 million loan with Leucadia National Corp., owner of investment bank Jefferies Group LLC, that would enable the New York-based firm to regain its footing after the events of last week. The details of the loan aren’t pretty.

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fxcmjpgLeucadia’s two-year term loan to FXCM would replace capital to cover negative client balances and pay down outstanding revolving debt. The loan’s interest rate would initially be 10%, but would increase by 150 basis points each quarter, up to 17%, the company said in a press release. Leucadia would also receive at least half of the proceeds from a sale of FXCM.

FXCM needs the loan to meet its regulatory capital requirements and continue normal operations “after significant losses were incurred due to unprecedented actions by the Swiss National Bank,” the company said in the release.

FXCM said that regulators required the firm to quickly supplement its net capital after the firm sustained heavy losses when the Swiss central bank last Thursday allowed the franc to trade freely against the euro. The franc jumped 15% as a result and is continuing to climb. FXCM’s deal Friday with Leucadia, also based in New York, enabled the firm to be in “compliance with all regulatory capital requirements.”

“We could not be more grateful to the Leucadia and Jefferies team for their rapid and effective response to work with us through this challenging process,” Drew Niv, FXCM’s chief executive officer, said in the release.

“Their financing and ongoing support will enable us to continue to provide the highest quality service to our customers and act as the leading online provider of foreign exchange trading and related services to retail and institutional customers worldwide.”

A Bloomberg story Tuesday cited a report by Citigroup analysts that the deal “essentially wiped out” the value of FXCM’s stock because Leucadia could force a sale of the company and keep most of the proceeds for itself. The analysts also wrote that FXCM would likely sell itself by April and its stockholders would keep 10% of the proceeds, according to Bloomberg.

Photo: New York Stock Exchange

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