Commitments, Contingencies and Guarantees

3 Months Ended

Feb. 29, 2012

Commitments, Contingencies and Guarantees [Abstract]

Commitments, Contingencies and Guarantees

Note 20. Commitments, Contingencies and Guarantees

Commitments

The following table summarizes our commitments associated with our capital market and asset management business activities at February 29, 2012 (in millions):

	Expected Maturity Date
	2012		2013		2014 and 2015		2016 and 2017		2018 and Later		Maximum Payout
Equity commitments	$	0.3	$	0.2	$	8.2	$	—	$	569.1	$	577.8
Loan commitments		89.3		51.9		464.6		36.1		—		641.9
Mortgage-related commitments		818.5		—		724.0		90.9		—		1,633.4
Forward starting reverse repos and repos		600.3		—		—		—		—		600.3
	$	1,508.4	$	52.1	$	1,196.8	$	127.0	$	569.1	$	3,453.4

The table below presents our credit exposure from our loan commitments, including funded amounts, summarized by period of expiration as of February 29, 2012. 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	0 - 12 Months		1 - 5 Years		Greater Than 5  Years		Total Corporate Lending Exposure (1)		Corporate Lending Exposure at Fair Value (2)		Corporate Lending Commitments (3)
A	$	30.0	$	—	$	—	$	30.0	$	2.9	$	27.1
BBB		23.0		—		—		23.0		13.0		10.0
Non-investment grade		73.6		46.0		—		119.6		32.2		87.4
Unrated		—		684.6		—		684.6		167.2		517.4
Total	$	126.6	$	730.6	$	—	$	857.2	$	215.3	$	641.9

(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 $215.3 million of funded loans included in Financial instruments owned — Loans and a $1.8 million credit related to lending commitments recorded in Financial instruments sold — Derivatives in the Consolidated Statement of Financial Condition as of February 29, 2012.

(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. At February 29, 2012, the total committed equity capital of JFIN was $1.0 million, to be funded equally by each partner. As of February 29, 2012, we have funded $107.5 million of our aggregate $500.0 million commitment leaving $392.5 million unfunded.

On February 23, 2011, we entered into a joint venture agreement with the Government of Singapore Investment Corporation to form LoanCore, a commercial real estate finance company with an aggregate equity commitment of $600.0 million. As of February 29, 2012, we have funded $168.5 million of our $291.0 million equity commitment in LoanCore, leaving $115.0 million unfunded, net of financing charges.

At February 29, 2012, we have committed to invest $5.9 million in Jefferies Capital Partners LLC, the manager of Jefferies Capital Partners IV L.P., Jefferies Capital Partners V L.P. and a related parallel fund, the USA Fund (Jefferies Capital Partners V L.P. and the USA Fund are collectively “Fund V”). As of February 29, 2012, we have funded approximately $1.0 million of our commitment to Jefferies Capital Partners LLC., leaving $4.9 million unfunded.

We have committed to invest in aggregate up to $85.0 million in Fund V, private equity funds managed by a team led by Brian P. Friedman, one of our directors and Chairman of the Executive Committee. On July 26, 2010 and on August 12, 2010, we entered into Subscription Agreements agreeing to commit up to $75.0 million in the USA Fund and $10.0 million in Jefferies Capital Partners V L.P., respectively. As of February 29, 2012, we have funded approximately $25.2 million and $3.4 million of our commitments to the USA Fund and Jefferies Capital Partners V L.P., respectively, leaving approximately $56.4 million unfunded in aggregate.

We have committed to invest up to $45.9 million in Jefferies Capital Partners IV L.P. and $3.1 million in JCP IV LLC, the General Partner, of Jefferies Capital Partners IV L.P. As of February 29, 2012, we have funded approximately $41.6 million and $2.1 million of our commitments to Jefferies Capital Partners IV L.P. and JCP IV LLC, respectively, leaving approximately $5.3 million unfunded in aggregate.

As of February 29, 2012, we had other equity commitments to invest up to $3.6 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 February 29, 2012, we had $213.0 million of loan commitments outstanding to clients. The fair value of loan commitments recorded as derivatives in the Consolidated Statements of Financial Condition was a liability of $1.8 million at February 29, 2012.

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 February 29, 2012, we have funded $79.9 million of the aggregate principal balance and $420.1 million of our commitment remained unfunded.

We entered into a credit agreement with JEP IV, a related party, whereby we are committed to extend loans up to the maximum aggregate principal amount of $54.0 million. As of February 29, 2012, we funded approximately $45.2 million of the aggregate principal balance, which is included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition and $8.8 million of our commitment remained unfunded.

The unfunded loan commitments to JFIN and JEP IV of $428.9 million in aggregate are unrated and included in the total unrated lending commitments of $517.4 million presented in the table above.

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 in the Consolidated Statement of Financial Condition was $67.0 million at February 29, 2012.

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.

Guarantees

Derivative Contracts.    Our dealer activities cause us to 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 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 February 29, 2012 (in millions).

	Expected Maturity Date
Guarantee Type	2012		2013		2014 and 2015		2016 and 2017		2018 and Later		Notional/ Maximum Payout
Derivative contracts — non-credit related	$	25,026.8	$	3,040.8	$	46,828.4	$	—	$	—	$	74,896.0
Derivative contracts — credit related		—		—		5.0		350.1		44.6		399.7
Total derivative contracts	$	25,026.8	$	3,040.8	$	46,833.4	$	350.1	$	44.6	$	75,295.7

At February 29, 2012 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		Below Investment Grade		Unrated		Notional/ Maximum Payout
Credit related derivative contracts:
Index credit default swaps	$	19.6	$	10.0	$	315.0	$	14.8	$	40.3	$	399.7

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 February 29, 2012, the fair value of derivative contracts meeting the definition of a guarantee is approximately $144.5 million.

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.