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Knight To See Another Day Following 60%+ Convertible Dilution
According to CNBC's David Faber, Knight Capital will live at least for another day and avoid bankruptcy. Instead, it will experience dilution which will make its equityholders almost wish the company was filing. Knight, via Jefferies, is about to stick its shareholders with a massive dilution following the issuance of a $400 million convert bond at a $1.50 conversion price, or more than 60% dilution from Friday's $4.05 closing price. This means the pro forma share count will soar from 90 million to 350 million upon conversion, which as David Faber says, will take place promptly by all members of the syndicate after 10 business days. In other words, KCG just issued stock at a ~63% discount to new money.
Knight Capital gets $400M from four firms through conv pref offering. Conversion price is $1.50 a share, but firm will be saved.
— DAVID FABER (@DavidFaberCNBC) August 5, 2012
More from CNBC:
Knight Capital Group has been saved with an infusion of $400 million in the form of a convertible preferred security that gives the buyers the right to buy Knight shares at $1.50, according to sources close to the deal.
The private-equity firm of General Atlantic (which owns the Getco market maker) along with Blackstone private equity, Omaha brokerage firm TD Ameritrade, and Stifel Nicolas will buy the $400 million preferred, which has a conversion price of $1.50 and will massively dilute the trading firm, but allow it to replenish its coffers and open for business on Monday.
The four buyers of the preferred will together own about 70 percent of the firm, which upon conversion of the preferred, will see its share count rise from a hundred million shares to roughly 350 million shares. The coupon on the preferred is 2 percent, but all the firms are expected to convert after 10 business days.
Jefferies led the offering and has been engaged with Knight since it suffered a $440 million trading loss on Wednesday.
This effectively means that the equity slice is for all intents and purposes wiped out and will be crammed down by a convert (technically upon conversion pari passu with the equity, but implicitly a 60%+ discount to market to stimulate new strategic investor interest), which itself may also be at risk, if Knight's action is insufficient to restore confidence in the firm from its counterparties. It also means that since the convert is unsecured, those who invest in it could face full write down on their investment shortly, which likely means the previously discussed TD Ameritrade and Getco.
But the good news, at least for Knight's 1400 employees, is that they will have a job for at least a few more days until the true fallout of last week's mega trade blunder is understood.
As for what happens next for KGC stock? It may well bounce following a sharp but brief short covering rally, only to be followed by an exodus as investors take the opportunity to cash out from a firm which has already indicated it will do anything to preserve its viability, including nearly complete dilution.
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Helluva price to pay for an I.T. f-up. I still say it sounds like sabotage.
Is it possible that the stock stays at ~ $4 even with a lower conversion price? Seems like a great deal for TD and other players.
Probably not... I guess after the $400M loss this firm was worth $600M and if the share count goes up to 350M is less than a $2 stock. Ouch.
You have to wonder what the interest rates are, especially if convertible debentures. Its more like TD Ameritrade & consortium took over Knight.
"CNBC"
It makes one cringe that this schlock outlet is credited with "breaking" the "Knight Resurrection" story...as short a resurrected life as Knight will ultimately enjoy.
As you might expect, Barron's this weekend has lots of comments about both Knight Capital and the dubiously positive jobs numbers released Friday. Barron's may also be launching a new column "Emerging Markets" the author is off to a great start if so! Also, BIG INSIDER SALES last week. And their big Cover Story on the current state of the oil business is excellent!
http://tinyurl.com/8aoy78n
Barron's is a rag that is good for only one purpose... A place for my dog to shit.
True about Barrons.
The predators keep Knight alive because it's long been the biggest naked shorting MM and the other scumbag crims need their evil facilitator to provide cover.
A muppet by any other name would lose as much.
Keep buying "stocks" suckers!
Maybe but I doubt it. KCG had a book value of around $15 at the end of June and had traded in a pretty tight range between $12 and 14 all year. Then in about 30 seconds of the type of activity they engage in every day of the week they screwed up and managed to almost put the company in the grave. They lost $440 million. So they raise $400 million, they are basically back to the same book value, (maybe a bit higher since the after tax loss is about $275 million)but now if you own one of the 90 million shares you get to share that book with 265 million new friends. So now the book is about $4 a share not $15. Why, after this screw up would it trade better than it did before? If the details of the story are correct and it pops on short covering looks like a great sell.
That's helpful. But it doesn't sound like this will then trade down to the convert either. Correct?
If we have a similar book value but 350 total shares then wouldn't this trade between $3.5 and $4.5? The stock will likely get diluted down to the current $4 price - assuming a similar book value multiple. Is that your take?
I see the issue. The multiple is probably 50%. So we could see it at $2 tomorrow morning. Well I picked some up below $2 so I can't complain. Thought they could get something more attractive than this.
I'm surprised some clowns haven't reversed your trade yet, given that you bought at a clearly attractive price ...
$3... thought it was below $2. Thought I got it on the cheap when it rallied, but given this joke of a manuever looks like I now may be down on the position. Serves me right for not selling on Friday. Live and learn.
"they screwed up and managed to almost put the company in the grave."
Almost? Trust me, they're in the grave. They've only been resurrected to do zombie work for their new masters!
Very unlikely. This amount of dilution is never good for the stock price. It would not surprise me to see this stock trade right at or below the $1.50 price of the additional shares tomorrow.
What would you do if you had the stock at $4 knowing that somebody else could convert at $1.50 in four days? Same thing everybody else would do.... Sell before they convert.
Yes, this was a setup. Not being talked about is the fact that KCG had $7.5B in cash as of their last quarterly statement in June 2012. They could have handled the loss. This was engineered to remove competition and control an avenue of the markets. Interactive Brokers needs to take caution (IBKR).
I SAY LET EM CRASH!
If they survive this, just think how bad they were dicking everyone before.
That was a big, public loss...
As good as bust for shareholders and who would want to flush $400m down the toilet?
When is it facebooks turn?
They're halfway there already!
I wonder if Knight will deploy a cunning algo which ongoingly purchases its own convertible stock at $1.55 and sells it at $1.45?
hit take hit take repeat 9000x invert take hit take hit ...thank you GS for the pillow . SOLD SOLD SOLD . Id NEVER let a share roll through these pipes again...or any other chop shop "mkt maker"> Seriously WTF? Im gonna blow outta my small cap mutual funds tomorrow. You dopes... keep rollin with the "institutional market makers" Anyone ask FINRA who is he new market maker on the block? Stop inflows to Mutual funds who use "market makers" for ACCESS! LOL
Looks like this article was correct:
"CNBC reported on Sunday that Knight was close to securing a $400 million capital injection from a group of investors that is likely to include Chicago market-maker Getco and Omaha brokerage firm TD Ameritrade.
Citing a person involved in the deal, CNBC said the infusion would come in the form of a sale of convertible securities or bonds that turn into Knight stock at a fixed price.
A spokeswoman for TD Ameritrade said the brokerage had no comment.
It would be in TD Ameritrade's best interests to keep Knight afloat, as the firm, the No. 1 U.S. brokerage by trading volume, has exclusive clearing deals with Knight.
Two months ago, Knight bought Penson's futures business for $5 million. TD Ameritrade exclusively clears its clients' futures and forex trades through that platform. The Omaha, Nebraska-based brokerage's entire bond platform is also with Knight.
"They really are handcuffed to Knight," a source with knowledge of TD Ameritrade's arrangements with Knight said.
Knight said on Thursday it was actively pursuing strategic and financing alternatives."
http://www.4-traders.com/TD-AMERITRADE-HOLDING-COR-10850714/news/Knight-talking-to-several-parties-on-financing-14446858/
Is there any way because of this Knight handcuff that TD Ameritrade can be in peril?
If Knight went bankrupt, and dragged TD Ameritrade down, and along with it Scottrade, along with bond, stock, and forex holdings, this would have been the 'big one.' But for now, its just like Sanford & Son.
I'd like to see them all drug down.
Knight needs reset button or it has to shutdown.
http://www.freefdawatchlist.com/2012/08/trading-volatility-s-index-vix.html
warren?
Warren, or WAR-ON!
are jeffries like the master of the worst deals possible, if somethings gonna tank jeffries are there.. atleast now i can laugh at all those fckers on stock twits who kept saying knight capital was ok..
Bear Stearns was okay too...
It works until it don't.
Interesting, a round of Death Spiral Financing for a firm which in the past, all to merrily dished out the same, and then went on to short the "borrower" into oblivion....justice served, fuck 'em.
FT has an article up saying the CFTC's going to drop their silver manipulation investigation . Fuckerz .
Yup ......
I wonder if this will spur on China to buy abundantly.
By the way -- there was a large increase in Commercial's short interest last week.
Anybody care to report that to the CFTC?
If the SEC needs some help looking into this, it looks like the
CFTC may have just cleared up their backlog:
http://maxkeiser.com/2012/08/05/ft-us-drops-probe-silver-manipulation/
Wonder if Knight becomes another Zombie? Saving it means saving lots of different things that otherwise collapse...
In a word: absolutely.
Yeap, the so called Smartest Guys. Vaseline for employees and rope for upper management. There fixed it.
I'm looking forward to the headlines by week's end that due to another HFT $KGC is toast ( btw anything north of $2.50 is a short ).I truly hope many more of these lowlifes fail because all they do is rape everyone's trades and unless you've invented close only stop software you are fucked managing the downside. Liquidity, what a crock. It's organized crime and of the worst kind.
Where's W. Bonzai with his Dark Knight Rises image showing all the bankers dressed as Batman characters throwing cash at the Dark Knight Capital?
Unlike Bear and Lehman, someone actually STEPPED UP! This is SO fucking bullish that I think I'll cover my Faceberg short tomorrow.
Seriously, this IS a BULLISH event. Someone actually sees a TRADE in KCG that stretches beyond a nanosecond. Think back to 2009 - no one would have lifted a finger.
2009 was indeed a "Generational Bottom" at 666 on the S&P. Every steep correction has been a buying opportunity since then. Yes it's all fucked but when you are a BEAR on the CURRENCY (USD/EU/JY), you just know that shorting FIAT is the "better trade".
Don't you think someone feared to be the next in line if KCG would collapse?
Knight loses over 400 mil in one day and you find this bullish because someone took a preferred share offering at a steep discount to it's Friday close. This company is heading to the pink sheets more than likely.
I'd hate to see what other great advice you have for us.
Does not sound like much of a lifeline.
Well I should say a lifeline for TD perhaps
Bailout!? I don't see why not. JP Morgue could just give em some silver stolen from MF GLobal and then sue the american taxpayer for bringing them to court on silver manipulation charges and merry go round of cronyist fraud keeps on bumpin along
http://silvervigilante.com
Another reason why Dow is untrusted. Load up on this stock in morning, sell the bitch at your target price!
Edit: Don't forget to play & watch those other companies under the umbella. Don't forget to pop your rectal bleeding drug treatment pill.
Bite Me !
This is a great Sunday watch if in need of some entertainment. Max Keiser's interview with Alex Jones. Almost fell off my chair when Alex gets to the point of saying Caligula married his horse.
Problem is is that it is most likely completely true.
Like AIG and Merryl.
Weekend shotgun sessions are never a good thing.
Release the shareholder lawsuits...
It would be funny if they turned the machines back on Monday and promptly lost another $400M.
they're done.
Who's next?
Excellent! I've been looking for a reason to sell all of my Facebook, Netflix and Lulumon shares and move into a real winner. This has got to be a once in a lifetime chance, huh? It's like getting in on an IPO or being handed some AIG!
Disclosure - I'm really out of the equities market, just poking fun at some of the momo traders!
looks like they have the buy high and sell low, down to a science !
I wonder where the stock will open tomorrow? Time for a reverse split perhaps?
knight's new favorite song, pink (sheets, slips...):
http://www.youtube.com/watch?v=RLRLhV9U0kQ
Knight has a Senior secured cash convertible preferred with an initial strike of about $21 due 2015. Face value is $375 million and they make payments biannually at 3.5%. I believe this is immediately payable in cash if their is a change of control????? Wonder if this structure gets around this since it is four buyers with effectively 18.5% a piece? Clearly, these bond holders will be talking with counsel tomorrow.
On the plus side, the fact that TD is taking a piece means they will likely get most of that business which is huge and will likely bring back the rest of the retail flow. Assume this one time loss and Q3 is shot but after that they will be in a good position if the stock market rallies after the election.
Someone gonna have to be paid real soon if so.
Yah... The investors in this Co. just saw 100 pct swings in converts intraday...you think they will allow a Getco "infusion"? Bwaaaahahahahaha> Cmon now. There are NO assets here...just a few tools and some not so great technology. By the way... what the fuk is Pasternack in the equation? He gonna propose some granular ciderblock to help Joyce? Man I fel for the button pushers at Knight...unfortunately they all knew they were working for a "TECHNOLOGY COMPANY not a BROKERAGE FIRM"
Fact 6:- KC won't survive in its current form
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There is no way that Knight can survive, no way. Something in the milk isn't clean, truly. Ask yourself why did these individuals rush to prop Knight up when they didn't do it for MF global or PF? I think something happened and they are trying to get that something out before allowing it to die.
I know they don't want that algo in the wrong hands if you know what I mean.
That's a novel approach...
Bailing out a company without using taxpayer money?
It'll never work, how could it.
Sorry Getco... the problem is KCG wasnt so hard to borrow, and as you are trying to exploit the forward price of KCG vs. its cash price....we wont demand forward shares. Market making with retail accounts AND institutional accounts is DONE. Believe me. Go spend the mil. for FINRA approval to make markets in dog crap. The SEC will now not only raise reg cap on "mkt making" joker firms but also make it impossible to make markets and accept customer flow. Why do you think Virtu dropped outta the "bidding"? Cmon!!! This place is toasting on hi and I feel for the other 10 chop shops that "make markets" for thier customers in US equities. Zugswang.
They may have 400 million in cash , but I'd like to see their burn rate when they have no traded directed their way. There is no way they can preserve KCG. All they can do is try to minimize the damage.
So it was a Gray Knight that came to rescue
CFTC to drop silver price rigging investigation ? I though Harvey Organ was on top of this ?
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