Note 12.

Investments

We have investments in Jefferies Finance, LLC (“Jefferies Finance”), Jefferies LoanCore LLC (“Jefferies LoanCore”) and Knight Capital Group, Inc. (“Knight Capital”). Our investment in Knight Capital is accounted for at fair value by electing the fair value option available under U.S. GAAP and is included in Financial instruments owned, at fair value – Corporate equity securities on the Consolidated Statement of Financial Condition with changes in fair value recognized in Principal transaction revenues on the Consolidated Statement of Earnings. Our investments in Jefferies Finance and Jefferies LoanCore are accounted for under the equity method and are included in Loans to and investments in related parties on the Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in the Consolidated Statements of Earnings.

Jefferies Finance

On October 7, 2004, we entered into an agreement with Babson Capital Management LLC (“Babson Capital”) and Massachusetts Mutual Life Insurance Company (“MassMutual”) to form Jefferies Finance, a joint venture entity. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies, with Babson Capital providing primary credit analytics and portfolio management services. Jefferies Finance can also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market, including loans that are performing, stressed and distressed loan obligations.

As of May 31, 2013, we and MassMutual each have equity commitments to Jefferies Finance of $600.0 million for total committed equity capital to Jefferies Finance of $1.2 billion. As of May 31, 2013, we have funded $299.4 million of our aggregate $600.0 million commitment, leaving $300.6 million unfunded. The investment commitment is scheduled to mature on March 1, 2016 with automatic one year extensions subject to a 60 day termination notice by either party.

Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance. The Secured Revolving Credit Facility bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total committed Secured Revolving Credit Facility is $700.0 million. The facility is scheduled to mature on March 1, 2016 with automatic one year extensions subject to a 60 day termination notice by either party. At May 31, 2013, we have not funded any of our $350.0 million commitment. During the three months ended May 31, 2013 and February 28, 2013, $0.4 million and $4.1 million of interest income and $0.4 million and $0.3 million of unfunded commitment fees, respectively, are included in the Consolidated Statement of Earnings related to the Secured Revolving Credit Facility. During the three and six months ended May 31, 2012, we earned interest income of $0.9 million and $3.4 million and unfunded commitment fees of $0.5 million and $0.9 million, respectively.

The following is a summary of selected financial information for Jefferies Finance as of May 31, 2013 and November 30, 2012 (in millions):


	May 31, 2013		November 30, 2012

Total assets	$	2,474.9	$	1,643.5
Total liabilities		1,876.0		1,102.1
Total equity		598.9		541.4
Our total equity balance		299.5		270.7

The net earnings of Jefferies Finance were $20.1 million and $56.7 million for the three and six months ended May 31, 2013, respectively and $27.1 million and $57.2 million for the three and six months ended May 31, 2012, respectively.

We engage in debt capital markets transactions with Jefferies Finance related to the originations of loans by Jefferies Finance. In connection with such transactions, we earned fees of $35.2 million and $31.0 million during the three months ended May 31, 2013 and February 28, 2013 and $32.2 million and $55.9 million during the three and six months ended May 31, 2012, respectively, recognized within Investment banking on the Consolidated Statements of Earnings. In addition, in relation to these transactions, we paid fees to Jefferies Finance of $6.2 million and $0.8 million during the three months ended May 31, 2013 and February 28, 2013, and $2.5 million and $6.3 million during the three and six months ended May 31, 2012, respectively, recognized within Business development expenses on the Consolidated Statements of Earnings.

Under a service agreement, we charged Jefferies Finance $5.4 million and $15.7 million for certain administrative services for the three months ended May 31, 2013 and February 28, 2013 and $6.9 million, and $17.8 million for the three and six months ended May 31, 2012, respectively. Receivables from Jefferies Finance, included within Other assets on the Consolidated Statements of Financial Condition, were $19.8 million and $32.1 million at May 31, 2013 and November 30, 2012, respectively.

Jefferies LoanCore

On February 23, 2011, we entered into a joint venture agreement with the Government of Singapore Investment Corporation and LoanCore, LLC and formed Jefferies LoanCore, a commercial real estate finance company. Jefferies LoanCore originates and purchases commercial real estate loans throughout the United States with the support of the investment banking and securitization capabilities of Jefferies and the real estate and mortgage investment expertise of the Government of Singapore Investment Corporation and LoanCore, LLC. Jefferies LoanCore has aggregate equity commitments of $600.0 million. As of May 31, 2013 and November 30, 2012, we have funded $107.5 million and $110.0 million, respectively, of our $291.0 million equity commitment and have a 48.5% voting interest in Jefferies LoanCore.

The following is a summary of selected financial information for Jefferies LoanCore as of May 31, 2013 and November 30, 2012 (in millions):


	May 31, 2013		November 30, 2012

Total assets	$	838.0	$	353.6
Total liabilities		533.1		81.8
Total equity		304.9		271.8
Our total equity balance		147.9		131.8

The net earnings of Jefferies LoanCore were $41.7 million and $49.1 million for the three and six months ended May 31, 2013, respectively, and $31.0 million and $44.6 million for the three and six months ended May 31, 2012, respectively.

Under a service agreement, we charged Jefferies LoanCore $0.1 million and $0.6 million for administrative services for the three months ended May 31, 2013 and February 28, 2013 and $0.1 million and $0.3 million for the three and six months ended May 31, 2012, respectively. Receivables from Jefferies LoanCore, included within Other assets on the Consolidated Statements of Financial Condition, were $36,000 and $37,000, at May 31, 2013 and November 30, 2012, respectively.

Jefferies LoanCore enters into derivative transactions with us to hedge its loan portfolio. As of May 31, 2013, the aggregate net fair value of derivative transactions outstanding with Jefferies LoanCore was $0.8 million and is included within Financial instruments owned on the Consolidated Statement of Financial Condition. During the three months ended May 31, 2013 and February 28, 2013, we recognized gains of $7.0 million and $0.2 million, respectively, on derivative transactions with Jefferies LoanCore which are included in Principal transactions revenue on the Consolidated Statements of Earnings.

Knight Capital

On August 6, 2012, we entered into a Securities Purchase Agreement with Knight Capital, a publicly-traded global financial services firm, (“the Agreement”). Under the Agreement, we purchased preferred stock in exchange for cash consideration of $125.0 million. The preferred stock consisted of 24,876 shares of Series A-1 Cumulative Perpetual Convertible Preferred Stock (“Series A-1 Shares”) and 100,124 shares of Series A-2 Non-voting Cumulative Perpetual Convertible Preferred Stock (“Series A-2 Shares”) (collectively the “Series A Securities”). Each Series A-1 Share is convertible into shares of common stock at the conversion rate of 666.667 shares of common stock. Each Series A-2 Share is convertible into one Series A-1 Share. On August 29, 2012, we exercised our conversion options and converted our holding of Series A Securities to common stock of Knight Capital. As of May 31, 2013, we own approximately 22% of the outstanding common stock of Knight Capital.

We elected to record our investment in Knight Capital at fair value under the fair value option as the investment was acquired as part of our capital markets activities. The valuation of our investment at May 31, 2013 is based on the closing exchange price of Knight Capital’s common stock and included within Level 1 of the fair value hierarchy. Changes in the fair value of our investment of $(5.7) million and $26.5 million for the three months ended May 31, 2013 and February 28, 2013, respectively, are recognized in Revenues – Principal transactions on the Consolidated Statement of Earnings.

The following is a summary of selected financial information for Knight Capital as of March 31, 2013 and December 31, 2012, the most recently available public financial information for the company (in millions):


	March 31, 2013		December 31, 2012

Total assets	$	10,912.8	$	9,778.4
Total liabilities		9,426.8		8,295.9
Total equity and convertible preferred stock		1,486.0		1,482.5

For the three months ended March 31, 2013, Knight Capital reported a net loss of $9.4 million.

On July 1, 2013, Knight Capital Group, Inc. completed its previously announced merger with GETCO Holding Company, LLC (the merged company referred to as “KCG Holdings, Inc.”). In connection with the consummation of the merger, we received cash consideration of $3.75 per share, or approximately $192 million, with respect to approximately 63% of our holdings in Knight Capital Group, Inc. and stock consideration of one third of a share of KCG Holdings, Inc. common stock for each share of Knight Capital common stock for the remainder of our holdings. As of July 2, 2013, we own approximately 8.5% of KCG Holdings, Inc.

We have separately entered into securities lending transactions with Knight Capital in the normal course of our capital markets activities. At May 31, 2013, the balances of securities borrowed and securities loaned were $6.4 million and $32.2 million, respectively.