For all posters who are whistling past the graveyard- you need to read this
FXCM Tries To Slip Bad News Past Investors
Jan. 24, 2015 1:41 AM ET | 2 comments | About: FXCM Inc. (FXCM)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
•FXCM slipped in Friday's trading as stockholders digested the idea that little equity may be left for them in a buyout.
•After hours, FXCM released a "business update" PR.
•They hid the dirty details in a Form 8-K.
By Parke Shall
Friday afternoon is often the time when companies get the bad news out of the way. In hopes that the Wall Streeters here in Manhattan have already moved outside their offices to local bars and restaurants, Friday after-hours is a notorious time for companies to let bad news slip out.
In the case of FXCM (NYSE:FXCM) today, that news was tucked away into an 8-K while people still lucky enough to be at their offices were treated to a cheery sounding PR.
After a tough trading day, FXCM released a "Business Update" after hours. The company touted their "Strong Operating Metrics":
“
Through Thursday, January 22, FXCM's month-to-date retail customer trading volume, which includes all retail FX and CFD volume, is $406 billion* with 30% coming from the last 5 days alone, which included a U.S. bank holiday. Average retail customer trading volume per day during this period is $27 billion.* As of January 22, tradable accounts were 224,547, and client equity was $1 billion.
"A week after the unprecedented movement of the Swiss Franc, and our financing agreement with Leucadia, FXCM continues to operate in the normal course of business. All of our entities have capital in excess of regulatory requirements. As our month-to-date metrics show, FXCM continues to be a global leader in retail FX with volumes on pace to set a record. We are especially thankful for our customers' loyalty and support," said Drew Niv CEO of FXCM.
But what the company failed to disclose was that in the Form 8-K filed at the same time, they amend their original letter agreement's major terms for their bailout money:
“
The loan matures on January 16, 2017. The obligations under the Amended and Restated Credit Agreement are guaranteed by certain wholly-owned unregulated domestic subsidiaries of the Company and are secured by substantially all of the assets of Holdings and certain subsidiaries of the Company, including a pledge of all of the equity interests in certain of Holdings' domestic subsidiaries and 65% of the voting equity interests in certain of its foreign subsidiaries.
The loan has an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter for so long as it is outstanding, but in no event exceeding 20.5% per annum (before giving effect to any applicable default rate). Under certain circumstances, a default interest rate will apply on all obligations during the event of default at a per annum rate equal to 2% above the applicable interest rate.
The Amended and Restated Credit Agreement requires the Borrowers to pay, in accordance with the Amended and Restated Fee Letter, a deferred financing fee in an amount equal to $10 million, with an additional fee of 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. (emphasis added)
This rate was thought to be 17% leading up to Friday. Investors had just digested the fact that the interest could skyrocket on the company if they don't keep it under control. Now, it looks like things could be worse than the street had thought.
As we have done in previous articles, we continue to urge caution investing in FXCM as we believe the company has a tough task in front of them when it comes to collecting on client balances, retaining their name and customers, as well as paying off this newly acquired debt. This move doesn't do much to tout their credibility at a time when they need it most.
AI
