Wednesday, August 8, 2012

Knight Capital Group (NYSE:KCG) Get At least Short Term Boost On Financing Deal

Knight Capital Group Inc. (NYSE:KCG) comes back to life after the Company managed to cover up its previously reported $400 million pre-tax loss arising from routing error to NYSE. An arrangement with private equity firms Blackstone and General Atlantic, and brokers Ameritrade and Stifel Nicolas has been made for $400mn of convertible financing, convertible at $1.50/share.

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The convertible financing will be available in the form of preferred security carrying dividend of 2%. The financing will have a dilution impact of around 75% bringing the pro forma share count from 93 million shares to 359 million shares on as convertible basis.

KCG’s excess net capital held at its broker-dealer Subsidiaries was $513 million at the end of first quarter 2012 with the Subsidiaries also having a $200 million revolving credit facility. The debt structure of KCG comprised of a $300 million convertible notes and $100 million 3-year term loan.

Analysts estimate that the Company’s ongoing business activities will not be impacted but they are still unsure of the impairment effect in 2013. Estimates for 2012 have been reduced to reflect the impairment charges.

The loss had occurred when a routing error to NYSE for shares of approximately 140 stocks due to technology failure had occurred in the Company’s market-marking unit. The technology failure had been the consequence of the installation of trading software, the malfunctioning of which led to erroneous trade positions leading to a pretax loss of $440 million hitting the Company’s Capital structure severely (around 41% of the tangible equity at the end of the second quarter of 2012).

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Share of the company have slumped over 70% in the past one week.

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