Leucadia estimates maximum loss exposure due to involvement with FXCM at $224.1m

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Leucadia National Corp. (NYSE:LUK) has just filed its 10-Q report for the first quarter of 2018, with the document showing little change with regard to the repayment of the “rescue” loan that Leucadia extended back in January 2015 to FXCM and little change in the estimate about Leucadia’s loss exposure as a result of its involvement with the broker.

Since we are talking of the loan, let’s recall that it had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum. During the three months ended March 31, 2018, interest accrued at 20.5% per annum.

During the first three months of 2018, Leucadia received $8.2 million of principal and interest from FXCM and $70.4 million of principal remained outstanding under the term loan as of March 31, 2018. Through March 31, 2018, Leucadia has received cumulatively $339.8 million of principal, interest and fees from its initial $279.0 million investment in FXCM.

Leucadia also reported gains related to the term loan in Principal transactions revenues of $8.6 million and $10.9 million during the first quarter of 2018 and 2017, respectively.

At the end of 2017, Leucadia has received cumulatively $331.6 million of principal, interest and fees from its initial $279.0 million investment in FXCM. The $279 million figure reflects a combination of a term loan of $300 million and rights to certain future distributions. At December 31, 2017, the remaining principal due under the term loan was $69.9 million.

On November 10, 2017, Leucadia and Global Brokerage Inc (OTCMKTS:GLBR), formerly known as FXCM Inc, entered into an agreement that amended the terms of the loan and associated rights. Among other changes, the amendments extended the maturity of the term loan to January 2019; and exchanged Leucadia’s rights for a 50% voting interest in FXCM, and up to 75% of all distributions.

Leucadia has the right, as does Global Brokerage Holdings, the owner of the remaining 50% of FXCM voting interest that is not held by Leucadia, to require a sale of FXCM beginning in January 2018. Distributions to Leucadia under the amended agreements are now: 100% until amounts due under the loan are repaid; 50% of the next $350 million; then 90% of the next $600 million; and 60% of all amounts thereafter.

Leucadia’s maximum exposure to loss as a result of its involvement with FXCM is $224.1 million at March 31, 2018. The sum includes the carrying value of the term loan ($73.2 million) and the investment in associated company ($150.9 million).

At the end of 2017, Leucadia put its maximum exposure to loss as a result of its involvement with FXCM at $231.7 million. As you can see, there is little change in the first quarter.

The 10-Q report included no mention of the legal action challenging the Leucadia deal with FXCM. It also did not mention Global Brokerage’s bankruptcy.

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