FXCM (FXCM) 'Equity Value Essentially Wiped Out' - Citi

Citi analyst William Katz reiterated a Neutral rating while lowering his price target on FXCM Inc (NYSE: FXCM) to $0.75 (from $4.25) following the details of the Leucadia financing. The analyst calls it the " Ultimate Margin Call."

Katz is saying the equity value is essentially wiped out. "Based on the disclosure (see Figure 1), we estimate pro forma market value around $50M-$68M; down from $1.3B prior to EUR/CHF de-pegging (see also our 1/16 report, Downgrade to Sell/High Risk as Multiple Issues Suddenly Appear Post EUR/CHF De-Peg & Going Concern Risk Rises). Given the events of the past few days, we doubt FXCM would be able to achieve its prior market cap, even assuming possible sale to a strategic buyer. Here, we believe growth, margins, litigation, and regulatory concerns will weigh on the shares."

The analyst also notes that based on the disclosure, it would seem FXCM will try to sell itself by April 2015.

The analyst called the terms of the deal "Onerous." "The loan has an annual interest rate of 10% increasing by 1.5% per annum each quarter, but cannot exceed 17%. It is also subject to mandatory prepayments and a variety of restrictive covenants. In turn, we see the “next $350M” portion of the Leucadia term scale in Figure 1 as fully taken by the Convertible Debt (and other debt) holders – leaving FXCM equity holders only 10% of the remaining $500M-$680M in sale proceeds."

For an analyst ratings summary and ratings history on FXCM Inc click here. For more ratings news on FXCM Inc click here.

Shares of FXCM Inc closed at $12.63 yesterday.

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