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Morning Commentary: FXCM slips as shares collapse following details of Leucadia financing
By Rebecca Melvin
New York, Jan. 20 – FXCM Inc.’s convertibles remained in market focus early Tuesday and traded little changed and then a little lower after the New York-based foreign exchange announced details on its financing from Leucadia National Corp.
FXCM shares, which were halted Friday pending news, reopened Tuesday and promptly collapsed nearly 90% to as low as $1.47.
FXCM was a primary focus of the convertibles market on Friday after the company warned of massive client losses tied to a spike in the Swiss franc.
Markets were closed on Monday for the Martin Luther King Jr. holiday.
Early Tuesday, the FXCM bonds traded at about 50 and then were offered at 49, market sources said. On Friday, they traded as low as 30 but ended at 49 bid, 50 offered.
“Terms of the bailout are dictating price. People thought Leucadia was going to give them a free ride, I guess,” a New York-based trader said.
Under the Leucadia financing agreement, which allowed FXCM to meet its regulatory capital requirements and continue normal trading operations, a new subsidiary was formed into which FXCM Holdings LLC contributed all of the equity interest owned to FXCM Newco LLC.
The loan has an initial interest rate of 10% per year, rising by 1.5% per year each quarter for as long as it is outstanding to a cap of 17%. The loan is subject to conditions and terms such as requiring mandatory prepayments and requiring lender consent to merge, dissolve, or sell or lease assets.
Elsewhere, convertibles traded quietly.
“There were no discernable themes,” a second New York-based trader said about the overall convertibles market. He added that he thought trading would be generally quiet ahead of news from the European Central Bank on Thursday about potential quantitative easing.
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