Loans to and Investments in Associated Companies

A summary of Loans to and investments in associated companies accounted for under the equity method of accounting during the nine months ended September 30, 2017 and 2016 is as follows (in thousands):



	Loans to and investments in associated companies as of January 1,		Income (losses) related to associated companies			Income (losses) related to Jefferies associated companies (1)			Contributions to (distributions from) associated companies, net			Other, including foreign exchange and unrealized gains (losses)			Loans to and investments in associated companies as of September 30,

2017
Jefferies Finance	$	490,464	$	—		$	63,685		$	109,899		$	—		$	664,048
Jefferies LoanCore	154,731		—			8,030			43,714			1,095			207,570
Berkadia	184,443		67,979			—			(52,300		)	(174		)	199,948
FXCM	336,258		(166,360		)	—			—			731			170,629
Garcadia Companies	185,815		38,536			—			(40,955		)	—			183,396
Linkem	154,000		(26,557		)	—			31,996			33,979			193,418
HomeFed	302,231		9,922			—			31,918			—			344,071
Golden Queen (2)	111,302		(3,684		)	—			(59		)	—			107,559
54 Madison (3)	161,400		(4,495		)	—			21,159			—			178,064
Other	44,454		246			(6,392		)	58,477			5,492			102,277
Total	$	2,125,098	$	(84,413	)	$	65,323		$	203,849		$	41,123		$	2,350,980

2016
Jefferies Finance	$	528,575	$	—		$	(26,000	)	$	(19,300	)	$	—		$	483,275
Jefferies LoanCore	288,741		—			11,186			(133,635		)	—			166,292
Berkadia	190,986		59,456			—			(70,847		)	291			179,886
FXCM	—		—			—			—			334,500			334,500
Garcadia Companies	172,660		43,501			—			(22,562		)	—			193,599
Linkem	150,149		(20,709		)	—			33,297			4,155			166,892
HomeFed	275,378		23,146			—			—			—			298,524
Golden Queen	114,323		(1,608		)	—			—			—			112,715
54 Madison	—		3,389			—			123,731			3,642			130,762
Other	36,557		1,270			(1,048		)	5,265			(3,401		)	38,643
Total	$	1,757,369	$	108,445		$	(15,862	)	$	(84,051	)	$	339,187		$	2,105,088


(1)	Primarily classified in Investment banking revenues and Other revenues.


(2)	At September 30, 2017 and December 31, 2016, the balance reflects $31.7 million and $32.8 million, respectively, related to a noncontrolling interest.


(3)	At September 30, 2017 and December 31, 2016, the balance reflects $105.0 million and $95.3 million, respectively, related to noncontrolling interests.

Income (losses) related to associated companies includes the following (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Berkadia	$	34,839		$	26,004		$	67,979		$	59,456
FXCM	(4,345		)	—			(166,360		)	—
Garcadia companies	12,565			14,233			38,536			43,501
Linkem	(9,533		)	(5,836		)	(26,557		)	(20,709		)
HomeFed	238			800			9,922			23,146
Golden Queen	(1,975		)	56			(3,684		)	(1,608		)
54 Madison	(331		)	906			(4,495		)	3,389
Other	(1,401		)	340			246			1,270
Total	$	30,057		$	36,503		$	(84,413	)	$	108,445

Income (losses) related to Jefferies associated companies (primarily classified in Investment banking revenues and Other revenues) includes the following (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Jefferies Finance	$	13,509		$	12,481		$	63,685		$	(26,000	)
Jefferies LoanCore	1,656			3,172			8,030			11,186
Other	(4,337		)	(263		)	(6,392		)	(1,048		)
Total	$	10,828		$	15,390		$	65,323		$	(15,862	)

Jefferies Finance

Jefferies Finance, a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company(“MassMutual”), 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. Jefferies Finance may 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 and acts as an investment advisor for various loan funds.

In July 2017, the Jefferies equity commitment to Jefferies Finance was increased by $150.0 million to $750.0 million, of which Jefferies contributed $74.8 million in July 2017. At September 30, 2017, Jefferies and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At September 30, 2017, $612.1 million of Jefferies commitment was funded. The investment commitment is scheduled to expire on March 1, 2018 with automatic one year extensions absent a 60-day termination notice by either party.

In addition, Jefferies and MassMutual have entered into a Secured Revolving Credit Facility, 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 Secured Revolving Credit Facility is for a total committed amount of $500.0 million at September 30, 2017 and December 31, 2016. Advances are shared equally between Jefferies and MassMutual. The facility is scheduled to mature on March 1, 2018 with automatic one year extensions absent a 60-day termination notice by either party. At September 30, 2017 and December 31, 2016, $35.1 million and $0.0 million, respectively, of Jefferies $250.0 million commitment was funded.

Jefferies engages in debt capital markets transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, Jefferies earned fees of $104.2 million and $19.0 million during the three months ended September 30, 2017 and 2016, respectively, and $243.5 million and $42.1 million during the nine months ended September 30, 2017 and 2016, respectively, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance of $2.5 million and $1.6 million during the nine months ended September 30, 2017 and 2016, respectively, which are recognized within Selling, general and other expenses in the Consolidated Statements of Operations.

Jefferies acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies recognized fees of $0.8 million and $1.3 million during the three months ended September 30, 2017 and 2016, respectively, and $4.7 million and $1.3 million during the nine months ended September 30, 2017 and 2016, respectively, which are included in Investment banking revenues in the Consolidated Statements of Operations. At September 30, 2017 and December 31, 2016, Jefferies held securities issued by CLOs managed by Jefferies Finance, which are included in Trading assets, and provided a guarantee, whereby Jefferies is required to make certain payments to a CLO in the event Jefferies Finance is unable to meet its obligations to the CLO. Additionally, Jefferies has entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by the CLO. Gains (losses) related to the derivative contracts were not material.

Under a service agreement, Jefferies charged Jefferies Finance $7.9 million and $7.2 million for services provided during the three months ended September 30, 2017 and 2016, respectively, and $37.4 million and $35.8 million for services provided during the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, Jefferies had a receivable from Jefferies Finance, included in Other assets in the Consolidated Statement of Financial Condition, of $22.5 million. At December 31, 2016, Jefferies had a payable to Jefferies Finance, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition, of $5.8 million.

Jefferies LoanCore

Jefferies LoanCore, a commercial real estate finance company, is a joint venture with the Government of Singapore Investment Corporation, the Canada Pension Plan Investment Board and LoanCore, LLC. Jefferies LoanCore originates and purchases commercial real estate loans throughout the U.S. and Europe. Jefferies LoanCore aggregate equity commitment was $400.0 million at September 30, 2017 and December 31, 2016. At September 30, 2017 and December 31, 2016, Jefferies had funded $130.6 million and $70.1 million, respectively, of its $194.0 million equity commitment, and has a 48.5% voting interest in Jefferies LoanCore.

Jefferies LoanCore has entered into master repurchase agreements with Jefferies. Jefferies recognized interest income and fees related to these agreements of $1.8 million and $6.9 million, during the three and nine months ended September 30, 2016, respectively. Amounts for the 2017 periods were not material. In connection with such master repurchase agreements, at December 31, 2016, Jefferies had securities purchased with agreements to resell from Jefferies LoanCore of $68.1 million. Jefferies also enters into OTC foreign exchange contracts with Jefferies LoanCore. In connection with these contracts, Jefferies had $5.0 million and $8.3 million at September 30, 2017 and December 31, 2016, respectively, recorded in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.

On October 31, 2017, Jefferies sold all of its membership interests in Jefferies LoanCore for approximately $170 million, the estimated book value as of October 31, 2017. In addition, Jefferies may be entitled to additional cash consideration over the next five years in the event Jefferies LoanCore's yearly return on equity exceeds certain thresholds.

Berkadia

Berkadia is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% equity interest in Berkadia. Through September 30, 2017, cumulative cash distributions received by Leucadia from this investment aggregated $546.9 million. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and originates and brokers commercial/multifamily mortgage loans which are not part of government agency programs. Berkadia is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.

Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. As of September 30, 2017, the aggregate amount of commercial paper outstanding was $1.47 billion.

FXCM

As discussed more fully in Note 3, at September 30, 2017, Leucadia has a 49.9% common membership interest in FXCM and a senior secured term loan to FXCM due January 2018. On September 1, 2016, we gained the ability to significantly influence FXCM through our common membership interest and our seats on the board of directors. As a result, we classify our equity investment in FXCM in our Consolidated Statements of Financial Condition as Loans to and investments in associated companies. Our term loan remains classified within Trading assets, at fair value. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology, trade name, leases and long-term debt over their respective useful lives.

Based on the February 2017 actions described further in Note 3, we evaluated in the first quarter of 2017 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow and comparable public company analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $130.2 million. We concluded based on the regulatory actions, FXCM's restructuring plan described further in Note 3, investor perception and declines in the trading price of Global Brokerage's common shares and convertible debt, that the decline in fair value of our equity interest was other than temporary. As such, we impaired our equity investment in FXCM in the first quarter of 2017 by $130.2 million.

FXCM is considered a VIE and our term loan and equity interest are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM.

Garcadia

Garcadia is a joint venture between us and Garff Enterprises, Inc. ("Garff") that owns and operates 28 automobile dealerships comprised of domestic and foreign automobile makers. The Garcadia joint venture agreement specifies that we and Garff shall have equal board representation and equal votes on all matters affecting Garcadia, and that all cash flows from Garcadia will be allocated 65% to us and 35% to Garff, with the exception of one dealership from which we receive 83% of all cash flows and four other dealerships from which we receive 71% of all cash flows. Garcadia’s strategy is to acquire automobile dealerships in primary or secondary market locations meeting its specified return criteria.

Linkem

We own approximately 42% of the common shares of Linkem, a fixed wireless broadband services provider in Italy. In addition, we own 5% convertible preferred stock, which is automatically convertible to common shares in 2020. If all of our convertible preferred stock was converted, it would increase our ownership to approximately 53% of Linkem’s common equity at September 30, 2017. The excess of our investment in Linkem’s common shares over our share of underlying book value is being amortized to expense over 12 years.

HomeFed

At September 30, 2017, we own 10,852,123 shares of HomeFed’s common stock, representing approximately 70% of HomeFed’s outstanding common shares; however, we have agreed to limit our voting rights such that we will not be able to vote more than 45% of HomeFed’s total voting securities voting on any matter, assuming all HomeFed shares not owned by us are voted. HomeFed develops and owns residential and mixed-use real estate properties. HomeFed is a public company traded on the NASD OTC Bulletin Board (Symbol: HOFD). As a result of a 1998 distribution to all of our shareholders, approximately 4.8% of HomeFed is beneficially owned by our Chairman at September 30, 2017. Three of our executives serve on the board of directors of HomeFed, including our Chairman who serves as HomeFed’s Chairman, and our President. Since we do not control HomeFed, our investment in HomeFed is accounted for as an investment in an associated company.

Golden Queen Mining Company

During 2014 and 2015, we invested $83.0 million, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project. Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully-permitted, open pit, heap leach gold and silver project located in Kern County, California, which commenced gold and silver production in March 2016. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family’s net contributions totaling $117.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. Golden Queen Mining Co. Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest.

As a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC’s net investment of $117.5 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family. The joint venture, Golden Queen, is considered a VIE as the voting rights of the investors are not proportional to their obligations to absorb the expected losses and their rights to receive the expected residual returns, given the provision of services to the joint venture by Golden Queen Mining Co. Ltd. Golden Queen Mining Co. Ltd. has entered into an agreement with the joint venture for the provision of executive officers, financial, managerial, administrative and other services, and office space and equipment. We have determined that we are not the primary beneficiary of the joint venture and are therefore not consolidating its results.

Our maximum exposure to loss as a result of our involvement with the joint venture is limited to our investment. The excess of Gauss LLC's investment in Golden Queen's underlying book value is being amortized to expense over the estimated life of mine gold and silver sales.

54 Madison

We own approximately 48.1% of 54 Madison, which we consolidate as a result of our control of the 54 Madison investment committee. 54 Madison seeks long-term capital appreciation through investment in real estate development and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Through September 30, 2017, 54 Madison invested an aggregate net amount of $178.3 million in projects accounted for under the equity method and $105.2 million of that was contributed from noncontrolling interests.

Other

The following table provides summarized data for certain associated companies (Jefferies Finance, Jefferies LoanCore, Berkadia, Garcadia, Linkem and HomeFed) (in thousands):



	For the Nine Months Ended September 30,
	2017		2016
Revenues	$	3,101,152	$	2,839,721
Income from continuing operations before extraordinary items	$	291,261	$	161,514
Net income	$	291,261	$	165,184