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Leucadia National Corporation (NYSE: LUK), which loaned the US forex broker FXCM (NYSE:FXCM) $300 million in January 2015, reported that so far it is pleased with its investment and is expecting full repayment of the loan during 2017, as FXCM continues to sell noncore assets and generate operating cash flow.
The sum was needed for the US headquartered broker to meet its regulatory-capital requirements and continue normal operations after the unprecedented loss of $225 million due to Swiss National Bank decision to abandon EUR/CHF minimum exchange rate.
As per the loan agreement between Leucadia and FXCM, the corporation has rights to a variable proportion of those assets and retains the right require a sale of FXCM beginning in January 2018.
The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum.
In March this year FXCM and Leucadia extended the existing agreement by one year, till January 2018, and amended the bonus system for the broker’s senior management. The initial interest rates were also somewhat reduced. FXCM expressed confidence it will be able to repay the loan as early as 2016, as the senior management hastily split the spoils from the new deal and changed the bonus system so they can get up to 200% of their base salary.
According to Leucadia’s Q2 2016 results, filed with the US Securities and Exchange Commission (SEC), through the end of the period its net investment of $279 million has so far yielded cumulative cash of $160.9 million. Of them, $16.2 million in principal, interest and fees, were paid out since the beginning of 2016.
The remaining outstanding principal balance of the loan is still $192.5 million, a little less than in the end of previous quarter when the sum stood at $192.7 million.
As per the amended agreement with Leucadia, the interest in the first quarter was 16% per annum and in the second quarter it was 17.5% per annum. In the third quarter it will rise to 19% per annum.