Commitments, Contingencies and Guarantees

9 Months Ended

Aug. 31, 2011

Commitments, Contingencies and Guarantees [Abstract]

Commitments, Contingencies and Guarantees

Note 19. Commitments, Contingencies and Guarantees

The following table summarizes our commitments and guarantees at August 31, 2011 (in millions):

	Expected Maturity Date
					2013		2015		2017		Notional/
					and		and		and		Maximum
	2011		2012		2014		2016		Later		Payout
Equity commitments	$	0.5	$	0.2	$	7.6	$	2.9	$	631.1	$	642.3
Loan commitments		33.2		12.1		381.0		67.6		33.0		526.9
Mortgage-related commitments		542.4		23.6		815.9		—		—		1,381.9
Forward starting repos		0.2		—		—		—		—		0.2
Derivative contracts:
Derivative contracts — non credit related		13,681.8		12,499.3		50,550.6		—		—		76,731.7
Derivative contracts — credit related		10.0		—		392.0		586.2		40.0		1,028.2
Total derivative contracts		13,691.8		12,499.3		50,942.6		586.2		40.0		77,759.9
	$	14,268.1	$	12,535.2	$	52,147.1	$	656.7	$	704.1	$	80,311.2

The following table summarizes the external credit ratings of the underlyings or referenced assets for credit related guarantees and derivatives (in millions):

	External Credit Rating
							Below				Notional/
	AAA/						Investment				Maximum
	Aaa		AA/Aa		BBB/Baa		Grade		Unrated		Payout
Loan commitments	$	—	$	30.0	$	73.0	$	54.1	$	369.8	$	526.9
Derivative contracts- credit related:
Index credit default swaps		20.0		345.0		—		412.0		251.2		1,028.2
Total credit related commitments	$	20.0	$	375.0	$	73.0	$	466.1	$	621.0	$	1,555.1

The table below shows our credit exposure from our lending commitments, including funded amounts, as of August 31, 2011. Since commitments associated with these business activities may expire unused, they do not necessarily reflect the actual future cash funding requirements (in millions):

Corporate Lending Commitments and Funded Loans at August 31, 2011

							Total		Corporate		Corporate
							Corporate		Lending		Lending
					Greater Than		Lending		Exposure at		Commitments
Credit Ratings	0 - 12 Months		1 - 5 Years		5 Years		Exposure (1)		Fair Value (2)		(3)
A	$	10.0	$	—	$	20.0	$	30.0	$	—	$	30.0
BBB		32.7		43.3		8.0		84.0		11.0		73.0
Non-investment grade		42.1		38.7		—		80.8		26.7		54.1
Unrated		31.3		635.5		—		666.8		297.0		369.8
Total	$	116.1	$	717.5	$	28.0	$	861.6	$	334.7	$	526.9

(1)	Total corporate lending exposure represents the potential loss assuming the fair value of funded loans and lending commitments were zero.
(2)	The corporate lending exposure carried at fair value includes $337.1 million of funded loans included in Financial instruments owned — Loans and $(2.4) million of lending commitments recorded in Financial instruments sold — Derivatives in the Consolidated Statement of Financial Condition as of August 31, 2011.
(3)	Amounts represent the notional amount of lending commitments less the amount of funded commitments reflected in the Consolidated Statements of Financial Condition.

Equity Commitments. On October 7, 2004, we entered into an agreement with Babson Capital and MassMutual to form JFIN, a joint venture entity created for the purpose of offering senior loans to middle market and growth companies. Loans are originated primarily through the investment banking efforts of Jefferies with Babson Capital providing primary credit analytics and portfolio management services. The total committed equity capitalization by the partners to JFIN was $500 million as of November 30, 2010. On March 1, 2011, we and MassMutual increased our equity commitments to JFIN, with an incremental $250 million committed by each partner. As a result, the new total committed equity capitalization to JFIN is $1 billion as of August 31, 2011. As of August 31, 2011, we have funded $107.5 million of our aggregate $500 million commitment leaving $392.5 million unfunded.

As of August 31, 2011, we have an aggregate commitment to invest additional equity of approximately $5.7 million in Jefferies Capital Partners IV L.P. and its related parallel fund, and an aggregate commitment to invest an additional $64.7 million in Jefferies Capital Partners V L.P. and its related parallel funds.

On February 23, 2011, we entered an agreement with the Government of Singapore Investment Corporation (“GIC”) and LoanCore LLC to form Jefferies LoanCore LLC, a new joint venture commercial real estate finance company with $600 million in initial equity commitments. Jefferies LoanCore LLC will originate commercial real estate debt. As of August 31, 2011, we have funded $117.5 million of our aggregate $291 million commitment leaving $173.5 million unfunded.

As of August 31, 2011, we had other equity commitments to invest up to $6.0 million in various other investments.

Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. As of August 31, 2011, we had $211.2 million of loan commitments outstanding to clients. The fair value of loan commitments recorded as derivatives in the Consolidated Statement of Financial Condition was $(2.4) million and $0.1 million at August 31, 2011 and November 30, 2010, respectively.

On March 1, 2011, we and MassMutual entered into a $1.0 billion secured revolving credit facility with JFIN, to be funded equally, to support loan underwritings by JFIN. The facility is scheduled to mature on March 1, 2014 with automatic one year extensions subject to a 60 day termination notice by either party. As of August 31, 2011, we have funded $194.7 million of the aggregate principal balance and $305.3 million of our commitment remained unfunded.

We entered into a credit agreement with Jefferies Employee Partners IV, LLC, a related party, whereby we are committed to extend loans up to the maximum aggregate principal amount of $54.0 million. As of August 31, 2011, we funded approximately $43.6 million of the aggregate principal balance, which is included in Other investments in our Consolidated Statements of Financial Condition and $10.4 million of our commitment remained unfunded.

Mortgage-Related Commitments. We enter into forward contracts to purchase mortgage participation certificates and mortgage-backed securities. The mortgage participation certificates evidence interests in mortgage loans insured by the Federal Housing Administration and the mortgage-backed securities are insured or guaranteed by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae). We frequently securitize the mortgage participation certificates and mortgage-backed securities. The fair value of mortgage-related commitments recorded as derivatives in the Consolidated Statement of Financial Condition was $4.0 million at August 31, 2011.

Forward Starting Repos. We enter into commitments to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government, agency and municipal securities.

Derivative Contracts. We disclose certain derivative contracts meeting the definition of a guarantee under GAAP. Such derivative contracts include credit default swaps and written equity put options. At August 31, 2011, the maximum payout value of derivative contracts deemed to meet the definition of a guarantee was approximately $77,759.9 million. For purposes of determining maximum payout, notional values are used; however, we believe the fair value of these contracts is a more relevant measure of these obligations because we believe the notional amounts overstate our expected payout. At August 31, 2011, the fair value of such derivative contracts approximated $(312.9) million. In addition, the derivative contracts deemed to meet the definition of a guarantee under GAAP are before consideration of hedging transactions. We substantially mitigate our risk on these contracts through hedges, such as other derivative contracts and/or cash instruments. We manage risk associated with derivative contracts meeting the definition of a guarantee consistent with our risk management policies.

Jefferies Financial Products, LLC. JFP maintains a credit intermediation facility with a highly rated European bank (the “Bank”), which allows JFP customers that require a counterparty with a high credit rating for commodity index transactions to transact with the Bank. The Bank simultaneously enters into offsetting transactions with JFP and receives fees from JFP for providing credit support.

Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business we provide guarantees to securities clearinghouses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote.