Note 11.

Investments

We have investments in Jefferies Finance, LLC (“Jefferies Finance”), Jefferies LoanCore LLC (“Jefferies LoanCore”) and KCG Holdings, Inc. (“Knight”). Our investment in Knight 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 Statements of Financial Condition with changes in fair value recognized in Principal transaction revenues on the Consolidated Statements 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 February 28, 2014, we and MassMutual each have equity commitments to Jefferies Finance of $600.0 million for a combined total commitment of $1.2 billion. As of February 28, 2014, we have funded $352.1 million of our $600.0 million commitment, leaving $247.9 million unfunded. The investment commitment is scheduled to expire on March 1, 2016 with automatic one year extensions absent 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 at February 28, 2014. The facility is scheduled to mature on March 1, 2016 with automatic one year extensions absent a 60 day termination notice by either party. At February 28, 2014 and November 30, 2013, we have funded $175.0 million and $123.8 million, respectively, of our $350.0 million commitment. During the three months ended February 28, 2014 and 2013, $0.5 million and $4.1 million of interest income and $0.7 million and $0.3 million of unfunded commitment fees, respectively, are included in the Consolidated Statements of Earnings related to the Secured Revolving Credit Facility.

The following is a summary of selected financial information for Jefferies Finance as of February 28, 2014 and November 30, 2013 (in millions):


	February 28, 2014		November 30, 2013

Total assets	$	3,790.5	$	3,271.9
Total liabilities		3,086.4		2,597.0
Total equity		704.1		674.9
Our total equity balance		352.1		337.3

The net earnings of Jefferies Finance were $29.2 million and $36.7 million for the three months ended February 28, 2014 and 2013, 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 net underwriting fees of $47.6 million and $39.9 million during the three months ended February 28, 2014 and 2013, respectively, recognized in Investment banking revenues on the Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance regarding certain loans originated by Jefferies Finance of $4.3 million and $0.8 million during the three months ended February 28, 2014 and 2013, respectively, which are recognized as Business development expenses on the Consolidated Statements of Earnings. Under a service agreement, we charged Jefferies Finance $21.7 million and $15.7 million for services provided during the three months ended February 28, 2014 and 2013, respectively. Receivables from Jefferies Finance, included within Other assets on the Consolidated Statements of Financial Condition, were $19.0 million and $31.1 million at February 28, 2014 and November 30, 2013, 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 February 28, 2014 and November 30, 2013, we have funded $129.5 million and $175.5 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 February 28, 2014 and November 30, 2013 (in millions):


	February 28, 2014		November 30, 2013

Total assets	$	768.3	$	974.9
Total liabilities		396.2		507.9
Total equity		372.1		467.0
Our total equity balance		180.5		226.5

The net earnings of Jefferies LoanCore were $5.0 million and $7.3 million for the three months ended February 28, 2014 and 2013, respectively.

Under a service agreement, we charged Jefferies LoanCore $0.1 million and $0.6 million for the three months ended February 28, 2014 and 2013, respectively. Receivables from Jefferies LoanCore, included within Other assets on the Consolidated Statements of Financial Condition, were $20,000 and $230,000 at February 28, 2014 and November 30, 2013, respectively.

In connection with the securitization of commercial real estate loans originated by Jefferies LoanCore, we earned placement fees of $0.3 million during the three months ended February 28, 2014. In addition, Jefferies LoanCore enters into derivative transactions with us to hedge its loan portfolio.

Knight Capital

On August 6, 2012, we entered into a Securities Purchase Agreement with Knight Capital Group, Inc., a publicly-traded global financial services firm, (“the Agreement”). Under the Agreement, we purchased preferred stock, which contained certain conversion options, in exchange for cash consideration of $125.0 million. On August 29, 2012, we exercised our conversion options and converted our holding of Series A Securities to common stock. On July 1, 2013, Knight Capital Group, Inc. merged 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 $192.0 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 Group Inc. common stock for the remainder of our holdings. As of February 28, 2014, we owned approximately 13% of the outstanding common stock of Knight. During March 2014, we acquired 6.0 million additional shares of Knight, resulting in our ownership of approximately 19.6% of Knight’s outstanding common stock.

We elected to record our investment in Knight 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 February 28, 2014 is based on the closing exchange price of Knight’s common stock and included within Level 1 of the fair value hierarchy. Changes in the fair value of our investment of $(1.0) million and $26.5 million for three months ended February 28, 2014 and 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 as of December 31, 2013, the most recently available public financial information for the company (in millions):


	December 31, 2013

Total assets	$	6,991.3
Total liabilities		5,484.0
Total equity		1,507.3

Knight’s net income attributable to common shareholders was $141.7 million for the year ended December 31, 2013.

We have separately entered into securities lending transactions with Knight in the normal course of our capital markets activities. At February 28, 2014, the balances of securities borrowed and securities loaned were $12.9 million and $23.6 million, respectively, and at November 30, 2013, $11.0 million and $22.7 million, respectively.