Note 7.

Fair Value Disclosures

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of May 31, 2013 and November 30, 2012 by level within the fair value hierarchy (in thousands):


	Successor
	May 31, 2013
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	1,788,659	$	106,495	$	19,577	$	—		$	1,914,731
Corporate debt securities		—		3,059,581		18,615		—			3,078,196
Collateralized debt obligations		—		197,965		45,124		—			243,089
U.S. government and federal agency securities		811,279		155,622		—		—			966,901
Municipal securities		—		621,440		—		—			621,440
Sovereign obligations		931,923		1,130,429		—		—			2,062,352
Residential mortgage-backed securities		—		3,440,947		143,766		—			3,584,713
Commercial mortgage-backed securities		—		673,855		16,068		—			689,923
Other asset-backed securities		—		43,512		1,444		—			44,956
Loans and other receivables		—		1,527,117		117,496		—			1,644,613
Derivatives		599,947		1,624,047		8,432		(2,039,660	)		192,766
Investments at fair value		—		1,069		76,364		—			77,433
Physical commodities		—		149,175		—		—			149,175

Total financial instruments owned	$	4,131,808	$	12,731,254	$	446,886	$	(2,039,660	)	$	15,270,288


Cash and cash equivalents	$	3,403,479	$	—	$	—	$	—		$	3,403,479
Investments in managed funds	$	—	$	—	$	55,141	$	—		$	55,141
Cash and securities segregated and on deposit for regulatory purposes (3)	$	3,056,141	$	—	$	—	$	—		$	3,056,141
Securities received as collateral	$	36,202	$	—	$	—	$	—		$	36,202

Total Level 3 assets					$	502,027


Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,608,517	$	37,162	$	38	$	—		$	1,645,717
Corporate debt securities		—		1,315,930		—		—			1,315,930
U.S. government and federal agency securities		762,107		—		—		—			762,107
Sovereign obligations		672,691		799,559		—		—			1,472,250
Residential mortgage-backed securities		—		179,270		—		—			179,270
Commercial mortgage-backed securities		—		2,957		—		—			2,957
Loans		—		1,003,727		15,212		—			1,018,939
Derivatives		624,205		1,771,907		19,231		(2,215,626	)		199,717
Physical commodities		—		174,906		—		—			174,906

Total financial instruments sold, not yet purchased	$	3,667,520	$	5,285,418	$	34,481	$	(2,215,626	)	$	6,771,793


Obligation to return securities received as collateral	$	36,202	$	—	$	—	$	—		$	36,202
Other secured financings	$	—	$	30,000	$	2,294	$	—		$	32,294
Embedded conversion option	$	—	$	10,902	$	—	$	—		$	10,902

(1)	There were no transfers between Level 1 and Level 2 for the three months ended May 31, 2013.

(2)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

(3)	Securities comprise U.S. government securities segregated for regulatory purposes with a fair value of $284.3 million.


	Predecessor
	November 30, 2012
	Level 1 (1)		Level 2 (1)		Level 3			Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	1,608,715	$	137,245	$	16,815		$	—		$	1,762,775
Corporate debt securities		—		3,034,515		3,631			—			3,038,146
Collateralized debt obligations		—		87,239		31,255			—			118,494
U.S. government and federal agency securities		1,720,617		115,310		—			—			1,835,927
Municipal securities		—		619,969		—			—			619,969
Sovereign obligations		1,722,044		975,810		—			—			2,697,854
Residential mortgage-backed securities		—		4,008,844		156,069			—			4,164,913
Commercial mortgage-backed securities		—		1,060,333		30,202			—			1,090,535
Other asset-backed securities		—		93,228		1,114			—			94,342
Loans and other receivables		—		497,918		180,393			—			678,311
Derivatives		615,024		1,547,984		328			(1,865,250	)		298,086
Investments at fair value		—		43,126		83,897			—			127,023
Physical commodities		—		144,016		—			—			144,016

Total financial instruments owned	$	5,666,400	$	12,365,537	$	503,704		$	(1,865,250	)	$	16,670,391


Level 3 financial instruments for which the firm does not bear economic exposure (3)						(53,289	)

Level 3 financial instruments for which the firm bears economic exposure					$	450,415


Cash and cash equivalents	$	2,692,595	$	—	$	—		$	—		$	2,692,595
Investments in managed funds	$	—	$	—	$	57,763		$	—		$	57,763
Cash and securities segregated and on deposit for regulatory purposes (4)	$	4,082,595	$	—	$	—		$	—		$	4,082,595

Total Level 3 assets for which the firm bears economic exposure					$	508,178


Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,442,347	$	96,947	$	38		$	—		$	1,539,332
Corporate debt securities		—		1,389,312		—			—			1,389,312
U.S. government and federal agency securities		1,428,746		250,387		—			—			1,679,133
Sovereign obligations		1,395,355		591,624		—			—			1,986,979
Residential mortgage-backed securities		—		239,063		—			—			239,063
Commercial mortgage-backed securities		—		2,148		—			—			2,148
Loans		—		205,516		1,711			—			207,227
Derivatives		547,605		1,684,884		9,516			(2,012,878	)		229,127
Physical commodities		—		183,142		—			—			183,142

Total financial instruments sold, not yet purchased	$	4,814,053	$	4,643,023	$	11,265		$	(2,012,878	)	$	7,455,463

(1)	There were no transfers between Level 1 and Level 2 for the year ended November 30, 2012.

(2)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

(3)	Consists of Level 3 assets attributable to third party or employee noncontrolling interests in certain consolidated entities.

(4)	Securities comprise U.S. government securities segregated for regulatory purposes with a fair value of $404.3 million.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities

•

Exchange Traded Equity Securities: Exchange-traded equity securities are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy.

•

Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).

•

Equity warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

•

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions of comparable size, and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.

•

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations

Collateralized debt obligations are measured based on prices observed for recently executed market transactions or based on valuations received from third party brokers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs.

U.S. Government and Federal Agency Securities

•

U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.

•

U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services. Non-callable U.S. agency securities are generally categorized within Level 1 and callable U.S. agency securities are categorized within Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

Residential Mortgage-Backed Securities

•

Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations, interest-only and principal-only securities and to-be-announced securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

•

Agency Residential Inverse Interest-Only Securities (“Agency Inverse IOs”): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.

Commercial Mortgage-Backed Securities

•

Agency Commercial Mortgage-Backed Securities: GNMA project loan bonds and FNMA Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.

•

Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables and student loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are determined using pricing data obtained from external pricing services and prices observed for recently executed market transactions.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•

Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on observed market prices of recently executed purchases of similar loans which are then used to derive a market implied spread, which in turn is used as the primary input in estimating the fair value of loans at the measurement date. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

•

Project Loans: Valuation of project loans are based on benchmarks of prices for recently executed transactions of related realized collateralized securities and are categorized within Level 2 of the fair value hierarchy.

•

Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

•

Listed Derivative Contracts: Listed derivative contracts are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security and are categorized within Level 2 of the fair value hierarchy.

•

OTC Derivative Contracts: Over-the-counter (“OTC”) derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

Physical Commodities

Physical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as Principal transaction revenues on the Consolidated Statements of Earnings.

Investments at Fair Value and Investments in Managed Funds

Investments at fair value and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity funds, which are measured at fair value based on the net asset value of the funds provided by the fund managers and are categorized within Level 2 or Level 3 of the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany and shares in non-U.S. exchanges and clearing houses. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy. Fair value for the shares in non-U.S. exchanges and clearing houses is determined based on recent transactions or third party model valuations and is categorized within Level 2 or Level 3 of the fair value hierarchy. The following tables present information about our investments in entities that have the characteristics of an investment company at May 31, 2013 and November 30, 2012 (in thousands):


	Successor
	May 31, 2013
	Fair Value (7)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds ⁽¹⁾	$	20,074	$	—	Monthly, Quarterly
High Yield Hedge Funds⁽²⁾		315		—	—
Fund of Funds⁽³⁾		433		106	—
Equity Funds⁽⁴⁾		65,851		49,019	—
Convertible Bond Funds⁽⁵⁾		3,038		—	At Will
Other Investments⁽⁶⁾		17		—	Bi-Monthly

Total⁽⁸⁾	$	89,728	$	49,125


	Predecessor
	November 30, 2012
	Fair Value (7)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds ⁽¹⁾	$	19,554	$	—	Monthly, Quarterly
High Yield Hedge Funds⁽²⁾		612		—	—
Fund of Funds⁽³⁾		604		106	—
Equity Funds⁽⁴⁾		69,223		59,272	—
Convertible Bond Funds⁽⁵⁾		3,002		—	At Will
Other Investments⁽⁶⁾		19		—	Bi-Monthly

Total⁽⁸⁾	$	93,014	$	59,378

(1)

This category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At May 31, 2013 and November 30, 2012, investments representing approximately 98% and 96%, respectively, of the fair value of investments in this category are redeemable with 30 – 65 days prior written notice, and includes an investment in a private asset management fund managed by us with a fair value of $0.5 million at November 30, 2012. The remaining investments in this category cannot be redeemed as they are in liquidation and distributions will be received through the liquidation of the underlying assets of the funds. We are unable to estimate when the underlying assets will be liquidated.

(2)

Includes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.

(3)

Includes investments in fund of funds that invest in various private equity funds. At May 31, 2013 and November 30, 2012, approximately 94%, of the fair value of investments in this category is managed by us and has no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in one to two years. As of May 31, 2013 and November 30, 2012, we have requested redemption for investments representing approximately 6% of the fair value of investments in this category; however, we are unable to estimate when these funds will be received.

(4)

At May 31, 2013 and November 30, 2012, investments representing approximately 99% and 98%, respectively of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. At May 31, 2013 and November 30, 2012, investments representing approximately 1% and 2%, respectively of the fair value of investments in equity funds are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated. At May 31, 2013 and November 30, 2012, this category includes investments in equity funds managed by us with a fair value of $53.2 million and $55.6 million and unfunded commitments of $47.5 million and $56.9 million, respectively.

(5)	Investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with 5 days prior written notice.

(6)	Other investments at May 31, 2013 and November 30, 2012 included investments in funds that invest in commodity futures and options contracts.

(7)	Fair value has been estimated using the net asset value derived from each of the funds’ capital statements.

(8)

Investments at fair value in the Consolidated Statements of Financial Condition at May 31, 2013 and November 30, 2012 include $42.8 million and $91.8 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table.

Other Secured Financings

Other secured financings includes the notes issued by VIEs related to transfers of financial assets and accounted for as financings, which are classified as Level 2 within the fair value hierarchy. Fair value is based on recent transaction prices. Other secured financings also includes mortgage-backed securities issued by a VIE for which we are deemed the primary beneficiary, categorized within Level 3 of the fair value hierarchy and measured using a discounted cashflow model with discount yield being a significant input.

Embedded Conversion Option

The embedded conversion option presented within long-term debt represents the fair value of the conversion option on Leucadia shares within our 3.875% Convertible Senior Debentures, due November 1, 2029 and categorized as Level 2 within the fair value hierarchy. The conversion option was valued using Black-Scholes methodology with significant assumptions including the price of Leucadia’s common stock, the conversion strike price, 252-day historical volatility, a maturity date of November 1, 2017 (the first put date), dividend yield and the risk-free interest rate curve.

Pricing Information

At May 31, 2013 and November 30, 2012, our Financial instruments owned and Financial instruments sold, not yet purchased are measured using different valuation bases as follows:


	Successor						Predecessor
	May 31, 2013						November 30, 2012
	Financial Instruments Owned			Financial Instruments Sold, Not Yet Purchased			Financial Instruments Owned			Financial Instruments Sold, Not Yet Purchased

Exchange closing prices		12	%		24	%		11	%		19	%
Recently observed transaction prices		9	%		15	%		5	%		6	%
External pricing services		66	%		56	%		70	%		71	%
Broker quotes		2	%		1	%		1	%		0	%
Valuation techniques		11	%		4	%		13	%		4	%

		100	%		100	%		100	%		100	%

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended May 31, 2013 (in thousands):


	Successor
	Three Months Ended May 31, 2013 ⁽³⁾
	Balance, February 28, 2013		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Net transfers into/ (out of) Level 3			Balance, May 31, 2013		Change in unrealized gains/ (losses) relating to instruments still held at May 31, 2013 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	13,234	$	2,906		$	5,023		$	(2,984	)	$	—		$	1,398		$	19,577	$	2,058
Corporate debt securities		31,820		(2,867	)		918			(11,989	)		—			733			18,615		(2,242	)
Collateralized debt obligations		29,776		6,698			17,864			(6,270	)		—			(2,944	)		45,124		6,148
Residential mortgage-backed securities		169,426		(86	)		57,750			(71,534	)		(5,436	)		(6,354	)		143,766		(367	)
Commercial mortgage-backed securities		17,794		(2,905	)		1,403			(2,744	)		(1,578	)		4,098			16,068		(3,835	)
Other asset-backed securities		1,252		(4	)		—			—			—			196			1,444		(4	)
Loans and other receivables		170,986		(5,049	)		160,409			(24,741	)		(188,268	)		4,159			117,496		(6,925	)
Investments, at fair value		70,067		(1,197	)		5,000			—			(2,493	)		4,987			76,364		(1,349	)
Investments in managed funds		59,976		(927	)		2,532			—			(6,562	)		122			55,141		(926	)

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	38	$	—		$	—		$	—		$	—		$	—		$	38	$	—
Residential mortgage-backed securities		1,542		—			(1,542	)		—			—			—			—		—
Net derivatives (2)		11,185		(386	)		—			—			—			—			10,799		386
Loans		7,398		—			(7,398	)		15,212			—			—			15,212		—
Other secured financing		—		—			—			—			—			2,294			2,294		—

(1)	Realized and unrealized gains/losses are reported in Principal transactions in the Consolidated Statements of Earnings.

(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

(3)	There were no issuances during the three months ended May 31, 2013.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended May 31, 2013

During the three months ended May 31, 2013, transfers of assets of $54.9 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

•

Non-agency residential mortgage-backed securities of $29.7 million and commercial mortgage-backed securities of $5.6 million for which no recent trade activity was observed for purposes of determining observable inputs;

•

Loans and other receivables of $6.9 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

•

Corporate equity securities of $2.7 million and corporate debt securities of $2.0 million due to lack of observable market transactions;

•

Collateralized debt obligations of $2.8 million which have little to no transparency in trade activity;

During the three months ended May 31, 2013, transfers of assets of $48.5 million from Level 3 to Level 2 are attributed to:

•

Non-agency residential mortgage-backed securities of $36.0 million and commercial mortgage-backed securities of $1.5 million for which market trades were observed in the period for either identical or similar securities;

•

Collateralized debt obligations of $5.7 million and loans and other receivables of $2.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

•

Corporate equity securities of $1.3 million and corporate debt securities of $1.2 million due to an increase in observable market transactions.

During the three months ended May 31, 2013, there were $2.3 million of transfers of liabilities from Level 2 to Level 3 and no transfers of liabilities from Level 3 to Level 2.

Net losses on Level 3 assets were $3.4 million and net gains on Level 3 liabilities were $0.4 million for the three months ended May 31, 2013. Net losses on Level 3 assets were primarily due to decreased valuations of certain loans and other receivables, commercial mortgage-backed securities, corporate debt securities, investments at fair value, investments in managed funds and residential mortgage-backed securities, partially offset by an increase in valuation of certain collateralized debt obligations and corporate equity securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.


	Predecessor
	Three Months Ended February 28, 2013 ⁽³⁾
	Balance, November 30, 2012		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Net transfers into/ (out of) Level 3			Balance, February 28, 2013		Change in unrealized gains/ (losses) relating to instruments still held at February 28, 2013 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	16,815	$	200		$	707		$	109		$	—		$	(4,597	)	$	13,234	$	172
Corporate debt securities		3,631		7,836			11,510			(1,918	)		—			10,761			31,820		7,833
Collateralized debt obligations		31,255		3,624			9,406			(17,374	)		—			2,865			29,776		(1,125	)
Residential mortgage-backed securities		156,069		11,906			132,773			(130,143	)		(6,057	)		4,878			169,426		4,511
Commercial mortgage-backed securities		30,202		(995	)		2,280			(2,866	)		(1,188	)		(9,639	)		17,794		(2,059	)
Other asset-backed securities		1,114		50			1,627			(1,342	)		(19	)		(178	)		1,252		(1	)
Loans and other receivables		180,393		(8,682	)		105,650			(29,828	)		(61,407	)		(15,140	)		170,986		(12,374	)
Investments, at fair value		83,897		961			952			(4,923	)		(9,721	)		(1,099	)		70,067		1,171
Investments in managed funds		57,763		(363	)		11,068			—			(8,492	)		—			59,976		(363	)

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	38	$	—		$	—		$	—		$	—		$	—		$	38	$	—
Residential mortgage-backed securities		—		25			(73,846	)		75,363			—			—			1,542		(19	)
Net derivatives (2)		9,188		2,648			—			—			—			(651	)		11,185		2,648
Loans		1,711		—			(1,711	)		7,398			—			—			7,398		—

(1)	Realized and unrealized gains/losses are reported in Principal transactions in the Consolidated Statements of Earnings.

(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

(3)	There were no issuances during the three months ended February 28, 2013.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2013

During the three months ended February 28, 2013, transfers of assets of $100.5 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

•

Non-agency residential mortgage-backed securities of $78.4 million and commercial mortgage-backed securities of $1.3 million for which no recent trade activity was observed for purposes of determining observable inputs;

•

Corporate debt securities of $10.8 million and corporate equity securities of $0.1 million due to lack of observable market transactions;

•

Collateralized debt obligations of $5.3 million which have little to no transparency in trade activity;

•

Loans and other receivables of $4.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

During the three months ended February 28, 2013, transfers of assets of $112.7 million from Level 3 to Level 2 are attributed to:

•

Non-agency residential mortgage-backed securities of $73.5 million, commercial mortgage-backed securities of $10.9 million and $0.2 million of other asset-backed securities for which market trades were observed in the period for either identical or similar securities;

•

Loans and other receivables of $19.9 million and collateralized debt obligations of $2.4 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

•

Corporate equity securities of $4.7 million due to an increase in observable market transactions.

During the three months ended February 28, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.7 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable significant inputs used in valuing the derivative contracts.

Net gains on Level 3 assets were $14.5 million and net losses on Level 3 liabilities were $2.7 million for the three months ended February 28, 2013. Net gains on Level 3 assets were primarily due to increased valuations of certain residential mortgage-backed securities, corporate debt securities, collateralized debt obligations and investments at fair value partially offset by a decrease in valuation of certain loans and other receivables, commercial mortgage backed securities and investments in managed funds. Net losses on Level 3 liabilities were primarily due to decreased valuations of certain derivative instruments.


	Predecessor
	Three Months Ended May 31, 2012 ⁽³⁾
	Balance, February 29, 2012		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Net transfers into/ (out of) Level 3			Balance, May 31, 2012		Change in unrealized gains/ (losses) relating to instruments still held at May 31, 2012 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	30,269	$	(4,392	)	$	4,240		$	(343	)	$	—		$	(3,985	)	$	25,789	$	(4,429	)
Corporate debt securities		33,606		269			14,610			(34,404	)		—			(6,109	)		7,972		(280	)
Collateralized debt obligations		72,576		(7,064	)		70,819			(60,538	)		(617	)		8,830			84,006		(2,102	)
Municipal securities		1,176		(85	)		—			(626	)		—			—			465		(76	)
Sovereign obligations		140		—			—			—			—			(140	)		—		—
Residential mortgage-backed securities		128,751		3,170			34,667			(31,723	)		(10,844	)		(466	)		123,555		(2,641	)
Commercial mortgage-backed securities		35,792		(1,346	)		3,026			(1,179	)		(855	)		5,156			40,594		(936	)
Other asset-backed securities		5,389		53			7,978			(10,507	)		(51	)		(1,589	)		1,273		—
Loans and other receivables		104,449		(3,784	)		45,846			(10,186	)		(14,309	)		(13,342	)		108,674		(3,795	)
Investments, at fair value		78,110		13,900			308			(6	)		(476	)		—			91,836		13,915
Investments in managed funds		73,015		(6,174	)		2,011			—			(538	)		—			68,314		(6,169	)

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	11,511	$	(765	)	$	(340	)	$	1,217		$	—		$	416		$	12,039	$	(255	)
Corporate debt securities		74		—			—			—			—			—			74		—
Net derivatives (2)		8,310		(3,800	)		(93	)		—			—			(22	)		4,395		(3,800	)

(1)	Realized and unrealized gains/losses are reported in Principal transactions in the Consolidated Statements of Earnings.

(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

(3)	There were no issuances during the three months ended May 31, 2012.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended May 31, 2012

During the three months ended May 31, 2012, transfers of assets of $70.2 million from Level 2 to Level 3 are primarily attributed to:

•

Collateralized debt obligations of $21.7 million which have no recent trade activity;

•

Non-agency residential mortgage-backed securities of $16.6 million, Commercial mortgage-backed securities of $5.4 million and Other asset-backed securities of $0.2 million for which no recent trade activity was observed for purposes of determining observable inputs;

•

Loans and other receivables of $23.5 million due to a lack of observable market transactions or vendor quotes during the period to support classification within Level 2 as less market interest likely existed for the specific loans during the period; and

•

Corporate debt securities of $2.7 million and Corporate equity securities of $0.2 million due to lack of observable market transactions.

During the three months ended May 31, 2012, transfers of assets of $81.8 million from Level 3 to Level 2 are primarily attributed to:

•

Loans and other receivables of $36.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2 as greater market interest likely existed for the specific loans during the period;

•

Collateralized debt obligations of $12.8 due to a greater number of contributors for certain vendor quotes supporting classification into Level 2 during the period;

•

Non-agency residential mortgage-backed securities of $17.0 million, Other asset-backed securities of $1.8 million and Commercial mortgage-backed securities of $0.2 million for which market trades were observed in the period for either identical or similar securities or for which vendor prices were corroborated to actual market transactions; and

•

Corporate debt securities of $8.8 million and Corporate equity securities of $4.2 million due to an increase in observable broker levels and recent trade activity in certain bonds and private equity positions.

During the three months ended May 31, 2012 there were $0.4 million of transfers of liabilities from Level 2 to Level 3, including $0.4 million of Corporate equity securities due to decreased broker quotes and observability of trades in certain securities. During the three months ended May 31, 2012 there were $22,000 of transfers of net derivative liabilities from Level 3 to Level 2 due to available broker quotes for the significant inputs used in valuing the derivative contracts.

Net losses on Level 3 assets were $5.5 million and net gains on Level 3 liabilities were $4.6 million for the three months ended May 31, 2012. Net losses on Level 3 assets were primarily due to decreased valuations of certain collateralized debt obligations, corporate equity securities, commercial mortgage backed securities, loans and other receivables and investments in managed funds. These loses were partially offset by increased valuations of certain investments at fair value. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain derivative instruments.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the six months ended May 31, 2012 (in thousands):


	Predecessor
	Six Months Ended May 31, 2012 ⁽³⁾
	Balance, November 30, 2011		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Net transfers into/ (out of) Level 3			Balance, May 31, 2012		Change in unrealized gains/ (losses) relating to instruments still held at May 31, 2012 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	13,489	$	(2,705	)	$	18,530		$	(343	)	$	—		$	(3,182	)	$	25,789	$	(2,741	)
Corporate debt securities		48,140		675			15,405			(50,387	)		(1,276	)		(4,585	)		7,972		(305	)
Collateralized debt obligations		47,988		(7,500	)		86,833			(82,125	)		(1,286	)		40,096			84,006		(3,226	)
Municipal securities		6,904		(156	)		—			(1,366	)		—			(4,917	)		465		(76	)
Sovereign obligations		140		—			—			—			—			(140	)		—		—
Residential mortgage-backed securities		149,965		(2,416	)		46,408			(64,726	)		(17,789	)		12,113			123,555		(7,960	)
Commercial mortgage-backed securities		52,407		(2,972	)		4,860			(3,716	)		(900	)		(9,085	)		40,594		(2,349	)
Other asset-backed securities		3,284		18			8,081			(8,631	)		(98	)		(1,381	)		1,273		(5	)
Loans and other receivables		97,291		(3,334	)		82,929			(30,873	)		(39,844	)		2,505			108,674		(4,744	)
Investments, at fair value		78,326		15,277			789			(6	)		(2,550	)		—			91,836		15,293
Investments in managed funds		70,740		(12,387	)		10,511			—			(550	)		—			68,314		(12,384	)

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	—	$	(681	)	$	(340	)	$	13,060		$	—		$	—		$	12,039	$	(208	)
Corporate debt securities		74		—			—			—			—			—			74		—
Net derivatives (2)		9,285		(2,288	)		(389	)		—			—			(2,213	)		4,395		(1,065	)
Loans		10,157		—			(10,157	)		—			—			—			—		—

(1)	Realized and unrealized gains/losses are reported in Principal transactions in the Consolidated Statements of Earnings.

(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

(3)	There were no issuances during the six months ended May 31, 2012.

Analysis of Level 3 Assets and Liabilities for the Six Months Ended May 31, 2012

During the six months ended May 31, 2012, transfers of assets of $114.6 million from Level 2 to Level 3 are attributed to:

•

Collateralized debt obligations of $52.3 million which have little to no transparency in trade activity;

•

Loans and other receivables of $27.6 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2 as less market interest likely existed for the specific loans during the period;

•

Non-agency residential mortgage-backed securities of $24.9 million, Commercial mortgage-backed securities of $3.9 million, and Other asset-backed securities of $0.9 million for which no recent trade activity was observed for purposes of determining observable inputs; and

•

Corporate debt securities of $3.4 million, Corporate equity securities of $1.0 million, and Municipal securities of $0.5 million due to lack of observable market transactions.

During the six months ended May 31, 2012, transfers of assets of $83.1 million from Level 3 to Level 2 are attributed to:

•

Loans and other receivables of $25.1 million and Collateralized debt obligations of $12.2 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2 as greater market interest likely existed for the specific loans during the period;

•

Commercial mortgage-backed securities of $13.0 million, Non-agency residential mortgage-backed securities of $12.8 million, and $2.3 million of Other asset-backed securities for which market trades were observed in the period for either identical or similar securities or for which vendor prices were corroborated to actual market transactions; and

•

Corporate debt securities of $8.0 million, Municipal securities of $5.4 million and Corporate equity securities of $4.2 million due to increased observability of trades in certain debt, municipal and equity securities.

During the six months ended May 31, 2012 there were no transfers of liabilities from Level 2 to Level 3 and there were $2.2 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable significant inputs used in valuing the derivative contracts.

Net losses on Level 3 assets were $15.5 million and net gains on Level 3 liabilities were $3.0 million for the six months ended May 31, 2012. Net losses on Level 3 assets were primarily due to decreased valuations of certain investments in managed funds, collateralized debt obligations, loans and other receivables, commercial mortgage backed securities, corporate equity securities and residential mortgage-backed securities, offset by an increase in valuation of certain investments at fair value. Net gains on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.

Components or portions of interest rate and credit risk related to mortgage-backed securities categorized within Level 3 of the fair value hierarchy are frequently economically hedged with U.S. Treasury and Eurodollar futures and short U.S. Treasury securities, which are categorized within Level 1 liabilities, and with interest rate swaps and, to a lesser extent, index credit default swaps categorized within Level 2 assets or liabilities. Accordingly, a portion of the gains and losses on mortgage-backed securities reported in Level 3 are offset by gains and losses from the economic hedges attributed to instruments categorized within Level 1 and Level 2. Economic hedging is often executed on a macro-basis for a given asset class rather than an instrument-specific basis. Valuation inputs and prices for hedging instruments categorized within Level 1 and Level 2 provide a level of observability used in valuing Level 3 mortgage-backed securities; however, other inputs, such as prepayment, default rates and other credit specific factors are significant to the valuation and are not derived from the prices of the hedging instruments. Basis risk differences may also arise between the Level 3 mortgage-backed securities and the Level 1 and Level 2 hedging instruments due to the underlying interest rates and the underlying credits comprising the referenced credit index. Hedge effectiveness is limited by factors that include idiosyncratic collateral performance and basis risk as well as the sizing of the macro-hedge.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at May 31, 2013 and November 30, 2012

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument; i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class. Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other quarters should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.


Successor
May 31, 2013
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range		Weighted Average

Corporate equity securities	$	19,577
Non-exchange traded securities			Market approach	EBITDA (a) multiple		4.0 to 16.0		7.7
			Scenario analysis	Estimated recovery percentage		25%		—
Warrants			Option model	Volatility		35%		—

Corporate debt securities	$	18,615
			Scenario analysis	Estimated recovery percentage		25%		—
			Comparable pricing	Comparable bond or loan price		$62.50 to $69.60	$	66.95
			Market approach	Yield		14%		—
Collateralized debt obligations	$	41,499
			Discounted cash flows	Constant prepayment rate		0% to 5%		0.2	%
				Constant default rate		0% to 10%		1	%
				Loss severity		13% to 100%		35	%
				Yield		10% to 59%		27	%
Residential mortgage-backed securities	$	143,766
			Discounted cash flows	Constant prepayment rate		0% to 33%		7	%
				Constant default rate		1% to 50%		7	%
				Loss severity		25% to 75%		49	%
				Yield		0% to 54%		8	%
Commercial mortgage-backed securities	$	16,068
			Discounted cash flows	Loss severity		65%		—
				Yield		22% to 98%		41	%
				Cumulative loss rate		2% to 21%		11	%
Other asset-backed securities	$	1,444
			Discounted cash flows	Loss severity		30%		—
				Yield		7%		—
Loans and other receivables	$	82,865
			Comparable pricing	Comparable bond or loan price		$100.00 to $101.25	$	100.29
			Discounted cash flows	Yield		20%		—
				Cumulative loss rate		0%		—
			Market approach	Yield		10% to 12%		11	%
				EBITDA (a) multiple		6.5		—
			Scenario analysis	Estimated recovery percentage		11% to 50%		35	%

Derivatives	$	8,432
Loan Commitments			Comparable pricing	Comparable bond or loan price		$100.00 to $101.25	$	100.61

Investments at fair value	$	14,510
Private equity securities			Comparable pricing	Comparable share price	$	400.00		—

Financial Instruments Sold, Not
Yet Purchased

Fair Value (in
thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range

Weighted
Average

Derivatives

(19,231

)

Equity options

Option model

Volatility

37%

—

Loan commitments

Comparable pricing

Comparable bond or loan price

$97.50 to $101.25

100.20

Loans

(15,212

)

Comparable pricing

Comparable bond or loan price

$100.00 to $101.25

100.42

(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).


Predecessor
November 30, 2012
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Range

Corporate equity securities	$	16,815
Non-exchange traded securities			Market approach	EBITDA (a) multiple	4.0 to 16.3
			Scenario analysis	Estimated recovery percentage	35%
Warrants			Option model	Volatility	39%

Collateralized debt obligations	$	26,705
			Discounted cash flows	Constant prepayment rate	0% to 5%
				Constant default rate	0% to 10%
				Loss severity	13% to 75%
				Yield	10% to 35%

Residential mortgage-backed securities	$	156,069
			Discounted cash flows	Constant prepayment rate	0% to 25%
				Constant default rate	0% to 50%
				Loss severity	0% to 80%
				Yield	1% to 50%

Commercial mortgage-backed securities	$	30,202
			Discounted cash flows	Yield	22% to 57%
				Cumulative loss rate	2% to 20%

Loans and other receivables	$	153,365
			Comparable pricing	Comparable bond or loan price	$81.88 to $101.25
			Discounted cash flows	Yield	19%
				Cumulative loss rate	0%
			Market approach	Yield	5% to 54%
				EBITDA (a) multiple	8.3
			Scenario analysis	Estimated recovery percentage	15%

Investments at fair value	$	32,751
Private equity securities			Market approach	EBITDA (a) multiple	6.6
			Comparable pricing	Comparable share price	$400.00
			Scenario analysis	Estimated recovery percentage	50%

Financial Instruments Sold, Not Yet Purchased

Fair Value (in
thousands)

Valuation Technique

Significant Unobservable Input(s)

Range

Derivatives

(9,516

)

Equity options

Option model

Volatility

39%

Loan commitments

Comparable pricing

Comparable bond or loan price

101.13

(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).

The fair values of certain Level 3 assets that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above table. At May 31, 2013 and November 30, 2012, the exclusions consisted of $110.1 million and $82.7 million, respectively, primarily comprised of investments in private equity and hedge funds, investments in reinsurance contracts, certain collateralized debt obligations and corporate loans.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:

•

Private equity securities, corporate debt securities, loans and other receivables and loan commitments using comparable pricing valuation techniques. A significant increase (decrease) in the comparable share, bond or loan price in isolation would result in a significant higher (lower) fair value measurement.

•

Non-exchange traded securities, corporate debt securities, private equity securities and loans and other receivables using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable would result in a significantly lower (higher) fair value measurement.

•

Non-exchange traded securities, corporate debt securities, and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

•

Loans and other receivables, collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severities or cumulative loss rate and discount rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significant lower (higher) fair value measurement.

•

Derivative equity options and equity warrants using an option model. A significant increase (decrease) in volatility would result in a significant higher (lower) fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by our capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned-derivatives and Financial instruments sold, not yet purchased – derivatives on the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in related parties on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have elected the fair value option for our investment in Knight Capital Group, Inc., which is included in Financial Instruments owned – Corporate equity securities on the Consolidated Statement of Financial Condition. See Note 12, Investments for further details regarding our investment in Knight Capital Group, Inc. We have also elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has also been elected for secured financings that arise in connection with our securitization activities and other structural financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, are not accounted for at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option (in thousands):


	Successor			Predecessor
	Three Months Ended May 31, 2013			Three Months Ended February 28, 2013			Three Months Ended May 31, 2012			Six Months Ended May 31, 2012
Financial Instruments Owned:
Loans and other receivables	$	13,474		$	3,924		$	2,839		$	4,713

Financial Instruments Sold:
Loans	$	—		$	—		$	101		$	121
Loan commitments		(5,421	)		(2,746	)		(1,239	)		(1,796	)

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):


	Successor		Predecessor
	May 31, 2013		November 30, 2012
Financial Instruments Owned:
Loans and other receivables (2)	$	279,278	$	256,271
Loans greater than 90 days past due (1) (2)		—		10,433

(1)	The aggregate fair value of loans that were 90 or more days past due was $-0- and $34.7 million at May 31, 2013 and November 30, 2012.

(2)	Interest income is recognized separately from other changes in fair value and is included within Interest revenues on the Consolidated Statements of Earnings.

There were no loans or other receivables on nonaccrual status at May 31, 2013 and November 30, 2012.