Commitments, Contingencies and Guarantees

Commitments

The following table summarizes our commitments associated with our capital market and asset management business activities at May 31, 2015 (in millions):



	Expected Maturity Date
	2015		2016		2017 and 2018		2019 and 2020		2021 and Later		Maximum Payout
Equity commitments (1)	$	—	$	9.2	$	0.9	$	—	$	257.7	$	267.8
Loan commitments (1)	34.3		475.7		387.4		60.1		—		957.5
Mortgage-related and other purchase commitments	909.9		1,330.6		499.1		—		—		2,739.6
Underwriting commitments	36.9		—		—		—		—		36.9
Forward starting reverse repos and repos	2,384.4		—		—		—		—		2,384.4
Other unfunded commitments (1)	30.0		—		—		6.0		37.5		73.5
	$	3,395.5	$	1,815.5	$	887.4	$	66.1	$	295.2	$	6,459.7


(1)	Equity, loan and other unfunded commitments are presented by contractual maturity date. The amounts are however available on demand.

The table below presents our credit exposure from our loan commitments, including funded amounts, summarized by period of expiration at May 31, 2015. Credit exposure is based on the external credit ratings of the underlyings or referenced assets of our loan commitments. Since commitments associated with these business activities may expire unused, they do not necessarily reflect the actual future cash funding requirements (in millions):



Credit Ratings	2015		2016-2020		2021 and Later		Total Corporate Lending Exposure (1)		Corporate Lending Exposure at Fair Value (2)		Corporate Lending Commitments (3)
Non-investment grade.	$	—	$	171.9	$	—	$	171.9	$	9.7	$	162.2
Unrated	115.0		864.6		—		979.6		184.3		795.3
Total	$	115.0	$	1,036.5	$	—	$	1,151.5	$	194.0	$	957.5


(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 at fair value includes $215.3 million of funded loans included in Financial instruments owned—Loans and Loans to and investments in related parties, and a $21.3 million net liability related to lending commitments recorded in Financial instruments sold, not yet purchased—Derivatives and Financial instruments owned—Derivatives in the Consolidated Statement of Financial Condition at May 31, 2015.


(3)	Represents the notional amount of unfunded lending commitments.

Equity Commitments. Includes commitments to invest in our joint ventures, Jefferies Finance and Jefferies LoanCore, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by Brian P. Friedman, one of our directors and Chairman of the Executive Committee. At May 31, 2015, our outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds was $30.2 million.

See Note 9, Investments, for additional information regarding our investments in Jefferies Finance and Jefferies LoanCore.

Additionally, at May 31, 2015, we had other outstanding equity commitments to invest up to $4.4 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 and to SPE sponsors in connection with the funding of CLO and other asset-backed 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. At May 31, 2015, we had $607.5 million of outstanding loan commitments to clients.

Loan commitments outstanding at May 31, 2015, also include our portion of the outstanding secured revolving credit facility provided to Jefferies Finance, to support loan underwritings by Jefferies Finance.

Mortgage-Related and Other Purchase Commitments. We enter into forward contracts to purchase mortgage participation certificates, mortgage-backed securities and consumer loans. 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 FNMA (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the GNMA (Ginnie Mae). We frequently securitize the mortgage participation certificates and mortgage-backed securities. The fair value of mortgage-related and other purchase commitments recorded in the Consolidated Statements of Financial Condition was $135.7 million at May 31, 2015.

Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting

commitments to our clients in connection with capital raising transactions.

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

Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.

Contingencies

During the first quarter of 2014, we reached a non-prosecution agreement with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC, relating to an investigation of purchases and sales of mortgage-backed securities. Those agreements include an aggregate $25.0 million in payments and at May 31, 2015, the outstanding reserve with respect to remaining payments to be made under the agreements is approximately $0.7 million.

Guarantees

Derivative Contracts. As a dealer, we make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under U.S. GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts.

The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under U.S. GAAP at May 31, 2015 (in millions):



	Expected Maturity Date
Guarantee Type:	2015		2016		2017 and 2018		2019 and 2020		2021 and Later		Notional/ Maximum Payout
Derivative contracts—non-credit related	$	28,156.7	$	3,319.6	$	614.6	$	644.4	$	430.6	$	33,165.9
Written derivative contracts—credit related	2.0		—		—		1,436.3		20.0		1,458.3
Total derivative contracts	$	28,158.7	$	3,319.6	$	614.6	$	2,080.7	$	450.6	$	34,624.2

At May 31, 2015 the external credit ratings of the underlyings or referenced assets for our credit related derivatives contracts (in millions):



	External Credit Rating
	AAA/ Aaa		AA/Aa		A		BBB/ Baa		Below Investment Grade		Unrated		Notional/ Maximum Payout
Credit related derivative contracts:
Index credit default swaps	$	1,324.3	$	—	$	—	$	—	$	—	$	—	$	1,324.3
Single name credit default swaps	$	—	$	—	$	22.0	$	24.0	$	88.0	$	—	$	134.0

The derivative contracts deemed to meet the definition of a guarantee under U.S. GAAP are before consideration of hedging transactions and only reflect a partial or “one-sided” component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. At May 31, 2015, the fair value of derivative contracts meeting the definition of a guarantee is approximately $371.6 million.

Loan Guarantee. We have provided a guarantee to Jefferies Finance that matures in January 2021, whereby we are required to make certain payments to an SPE sponsored by Jefferies Finance in the event that Jefferies Finance is unable to meet its obligations to the SPE and a guarantee of a credit agreement with an indefinite term for a fund owned by employees. At May 31, 2015, the maximum amount payable under these guarantees is $29.1 million.

Standby Letters of Credit. At May 31, 2015, we provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $37.3 million, which expire within one year. Standby letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement.

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. Accordingly no liability has been recognized for these arrangements.