FXCM Inc's Loan from Leucadia Net Proceeds $279 Million, Interest Rate Increases 1.5% Quarterly

Some details of the loan from Leucadia to FXCM are out, revealing a growing interest over time and the possibility

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A company announcement made by FXCM Inc. (NYSE:FXCM) reveals that the broker’s net proceeds from the two-year loan it secured from Leucadia last Friday, will total about $279 million. The initial interest rate on the loan was announced at 10% on Friday. The new information about the terms of the agreement is that the rate will increase at 1.5% quarterly, but won’t surpass 17%.

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The company formed a new subsidiary to enter into a credit agreement. FXCM Holdings LLC created a company FXCM Newco, which entered into the credit agreement. The obligations under the loan are secured by all of the assets of FXCM Holdings LLC.

Under the agreement between FXCM and Leucadia, the borrower will pay a deferred financing fee equal to $10 million, with up to $30 million becoming payable in the event the aggregate principal amount of the term loan outstanding on April 16, 2015 is greater than $250 million or the deferred financing fee of $10 million (plus interest) has not been paid on/or before such date.

Additional information about the distribution of proceeds from a prospective sale of FXCM Inc (NYSE:FXCM) is as follows:

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FXCM Inc Sale Proceeds Table

After the Martin Luther King holiday is out of the way, FXCM Inc shares are to resume trading on Tuesday. In premarket trading on Friday, share prices of FXCM Inc on the New York Stock Exchange were quoted at below $2 a share before trading was suspended for the day pending the Leucadia loan announcement.

Major Cost Cutting Efforts Likely

In the aftermath of the Swiss franc turmoil the company is very likely to resort to major cost cutting efforts. While the terms of the loan can be viewed by many as “draconian”, the firm did face an unprecedented situation and was in immediate need of capital in order to remain operational.

As of September 2014, FXCM had $327 million in cash, $188 million in debt and a $1.3 billion market cap. In the aftermath of the Leucadia announcement the firm is not likely to face any trouble in paying back $50 million of the loan by April 16th.

The more troubling developments around the broker is the reaction of the company’s clients. The reputational damage caused by the Swiss franc debacle can be even more damaging than the financial troubles of FXCM reported in the aftermath of the Swiss National Bank announcement last Thursday.

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