Author Topic: JEF - Jefferies Group  (Read 602031 times)

jjsto

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Re: JEF - Jefferies Group
« Reply #220 on: April 06, 2012, 07:03:51 AM »
So, given the uncertainty regarding the litigation around the FMG note, anyone have any thoughts as to what Leucadia could sell the note for in a private sale? 


scorpioncapital

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Re: JEF - Jefferies Group
« Reply #221 on: April 06, 2012, 07:39:48 AM »
I think the litigation of the FMG note is no longer an issue at this point - it may be in theory but not in practice. Consider that the reason FMG did it was because it was at a time 2 years ago when it was hard for them to raise money to finance their expansion. However, since then, they have raised money in the junk bond market and have not had to offer the sweetner of a royalty note to other investors. The more this goes on, the less likely that FMG will need to do something that dilutes LUK's interest. Given the DTA, I think the odds of a sale of this note is very low.


prevalou

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Re: JEF - Jefferies Group
« Reply #222 on: April 06, 2012, 07:54:00 AM »
What would cost FMG to dilute luk interest in the note ? They could raies money with ŕ low rate, the rest being indirectly paid by luk through dilution. Am i wrong ?

jjsto

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Re: JEF - Jefferies Group
« Reply #223 on: April 06, 2012, 08:31:08 AM »
Thanks scorpion.  That's the concept I was trying to wrap my head around.  Why would FMG in practice want to raise money offering royalties dilutive to the LUK note, when that would seem to be a more expensive form of financing?  Maybe if iron-ore prices collapse again, that could be an issue in the future.  I agree the odds of a sale on the note are low.  It always seemed like the idea was to hold on to the note and sell the stock if need be.  Which they have done.  I wonder if LUK would have held on to the stock if the problems with Andrew Forrest had never existed?

tombgrt

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Re: JEF - Jefferies Group
« Reply #224 on: April 06, 2012, 09:17:05 AM »
Thanks for your insight scorpioncapital, makes sense.

Good question jjsto. I assume that the position was getting too big given the return on the note. They are plenty cyclical already, no need to keep both a $1b+ position and the note. Just a guess tho.

How do you guys estimate IV for LUK? I find it really hard to do and only have a vague idea which is simply related to current book value and future expected BV growth.

prevalou

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Re: JEF - Jefferies Group
« Reply #225 on: April 06, 2012, 09:52:04 AM »
If my interpretation is right, you are mistaken about the cost for FMG to issue a note similar to Leucadia. Look at page 22 in the 10 k. Leucadia would be diluted prorata for its 4% interest. So the winner would be FMG and the looser Leucadia. It would cost FMG nothing or near nothing.

jjsto

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Re: JEF - Jefferies Group
« Reply #226 on: April 06, 2012, 10:55:57 AM »
So, I guess the relevant paragraph on page 22 states: "In August 2010, the Company was advised that Fortescue is asserting that FMG is entitled to issue additional notes identical to the FMG Note in an unlimited amount. Fortescue further claims that any interest to be paid on additional notes can dilute, on a pro rata basis, the Company’s entitlement to the stated interest of 4% of net revenue." Under that interpretation, Fortescue could issue an unlimited amount of identical notes at a minimal cost that would fully dilute the existing LUK notes?  In that case,  the only thing currently preventing Fortescue from doing that would be the Writ of Summons filed by LUK in Sept 2010?

tombgrt

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Re: JEF - Jefferies Group
« Reply #227 on: April 06, 2012, 11:43:33 AM »
That was my interpretation of that paragraph as well jjsto. That's why I'm hoping the letter to shareholders brings more clarity about the issue.

prevalou

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Re: JEF - Jefferies Group
« Reply #228 on: April 06, 2012, 12:46:35 PM »
It is my interpretation too unless prorata has a signification i ignore

scorpioncapital

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Re: JEF - Jefferies Group
« Reply #229 on: April 06, 2012, 01:10:27 PM »
-"Fortescue Metals Aims to Raise $1 Billion by Issue of Junk Bonds"

"Fortescue Metals Group Ltd. (FMG.AU) has secured $2 billion through a bond issue for the expansion of its iron ore-mining operations in Western Australia, twice the amount it had set out to raise, the mining company said Thursday. "

"Fortescue last sold bonds in October, when it issued $1.5 billion of 8.25% eight-year senior unsecured notes. "

I think this is exactly what is happening - FMG is able to raise money in debt markets, so diluting the LUK royalty, is a last resort - especially with the litigation. Andrew was probably up against the wall when he thought no other way to raise money except to dilute the royalty to LUK. Since the wall has gone away so far and LUK's aggressive stance, it wouldn't pay to go that route.