Note 9. Jefferies Finance LLC

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, LLC (“JFIN”), a joint venture entity created for the purpose of offering senior loans to middle market and growth companies. JFIN is a commercial finance company whose primary focus is the origination and syndication of senior secured debt 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. JFIN can also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. JFIN also purchases syndicated loans in the secondary market, including loans that are performing, stressed and distressed loan obligations.

On March 1, 2011, we and MassMutual increased our equity commitments to JFIN, with an incremental $250 million committed by each partner. Including the incremental $250 million from each partner, the total committed equity capital of JFIN is $1.0 billion. As of August 31, 2011, we have funded $107.5 million of our aggregate $500 million commitment, leaving $392.5 million unfunded.

In addition, on March 1, 2011, we and MassMutual entered into a $1.0 billion Secured Revolving Credit Facility, to be funded equally, to support the loan underwritings by JFIN. The Secured Revolving Credit Facility bears interest based on the interest rates of the related JFIN underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The facility is scheduled to mature on March 1, 2014 with automatic one year extensions subject to a 60 day termination notice by either party. At August 31, 2011, we have funded $194.7 million of our $500 million commitment.

Our total commitment under a revolving line of credit increased from $150 million to $500 million during the first quarter of 2011 and was scheduled to renew on September 4, 2011, was terminated on March 1, 2011. At November 30, 2010, the amount funded under the revolving line of credit was $-0-.

Our investment in JFIN is accounted for under the equity method of accounting and is included in Other investments in the Consolidated Statements of Financial Condition. Equity method gains and losses on JFIN are included in Equity income in the Consolidated Statements of Earnings.

The following is a summary of selected financial information for JFIN as of August 31, 2011 and November 30, 2010 (in millions):


	August 31,		November 30,
	2011		2010
Total assets	$	1,369.6	$	890.4
Total liabilities		975.2		566.4
Total equity		394.4		324.0
Our total equity balance		197.2		162.0

JFIN’s net earnings were $10.5 million and $18.0 million for the three months ended August 31, 2011 and 2010, respectively, and $69.3 million and $48.2 million for the nine months ended August 31, 2011 and the eight months ended August 31, 2010, respectively.

During the nine months ended August 31, 2011, we purchased participation certificates in loans originated by JFIN of $477.2 million, which were subsequently redeemed in full during the same period.

We engage in debt capital markets transactions with JFIN related to the originations of loans by JFIN. In connection with such transactions, we earned fees of $16.6 million and $8.0 million during the three months ended August 31, 2011 and 2010, respectively, and $52.0 million and $19.0 million during the nine months ended August 31, 2011 and the eight months ended August 31, 2010, respectively. In addition, in relation to these transactions we also paid fees to JFIN of $2.9 million and $1.7 million during the three months ended August 31, 2011 and 2010, respectively, and $9.3 million and $12.2 million during the nine months ended August 31, 2011 and the eight months ended August 31, 2010, respectively.