Investments

12 Months Ended

Nov. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments

Investments

At November 30, 2019, we had investments in Jefferies Finance LLC (“Jefferies Finance”) and Berkadia. In addition, we had an investment in Epic Gas, which was sold on March 19, 2019. Our investments in Jefferies Finance, Berkadia and Epic Gas have been accounted for under the equity method and have been included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in our Consolidated Statements of Earnings. We have limited partnership interests of 10% and 46% in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, “JCP Fund V”), respectively, which are private equity funds managed by a team led by one of our directors and our Chairman of the Executive Committee. In addition, we had investments in KCG Holdings, Inc. (“KCG”) and Jefferies LoanCore LLC (“Jefferies LoanCore”), which were sold on July 20, 2017 and October 31, 2017, respectively. Our investment in KCG was accounted for at fair value by electing the fair value option available under U.S. GAAP and changes in fair value were recognized in Principal transactions revenues in our Consolidated Statements of Earnings. Our investment in Jefferies LoanCore was accounted for under the equity method with our share of the investees’ earnings recognized in Other revenues in our Consolidated Statements of Earnings.

Jefferies Finance

Jefferies Finance, a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”), is a commercial finance company that structures, underwrites and syndicates primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. 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.

At November 30, 2019, we and MassMutual each had equity commitments to Jefferies Finance of $750.0 million for a combined total commitment of $1.5 billion. At November 30, 2019, we had funded $643.7 million of our $750.0 million commitment, leaving $106.3 million unfunded. The investment commitment is scheduled to expire on March 1, 2020 with automatic one year extensions absent a 60 days 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, which 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 a committed amount of $500.0 million at November 30, 2019. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2020 with automatic one year extensions absent a 60 days termination notice by either party. At November 30, 2019, we had funded $0.0 million of our $250.0 million commitment. The following summarizes the activity included in our Consolidated Statements of Earnings related to the facility (in millions):

	Year Ended November 30,
	2019		2018		2017
Interest income	$	—	$	1.2	$	2.9
Unfunded commitment fees	1.3		1.2		1.0

Separate financial statements for Jefferies Finance are included in this Annual Report on Form 10-K. The following is a summary of selected financial information for Jefferies Finance (in millions):

	November 30,
	2019		2018
Total assets	$	7,112.4	$	7,776.5
Total liabilities	5,828.3		6,386.9
Total equity	1,284.1		1,389.6
Our total equity balance	642.0		694.8

	Year Ended November 30,
	2019		2018		2017
Net earnings	$	44.5	$	197.2	$	181.7

The following summarizes activity related to our other transactions with Jefferies Finance (in millions):

	Year Ended November 30,
	2019		2018			2017
Origination and syndication fee revenues (1)	$	176.3	$	377.7		$	327.9
Origination fee expenses (1)	27.6		56.6			2.4
CLO placement fee revenues (2)	6.0		3.7			6.1
Derivative losses (3)	—		(1.6		)	(1.1		)
Underwriting fees (4)	3.9		0.3			—
Service fees (5)	60.8		61.7			50.7

(1) We engage in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, we earned fees, which are recognized in Investment banking revenues in our Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized as Business development expenses in our Consolidated Statements of Earnings.

(2) We act as a placement agent for CLOs managed by Jefferies Finance, for which we recognized fees, which are included in Investment banking revenues in our Consolidated Statements of Earnings. At November 30, 2019 and 2018, we held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.

(3) We have entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by CLOs and we have recognized gains (losses) relating to the derivative contracts.

(4) We acted as underwriter in connection with term loans issued by Jefferies Finance.

(5) Under a service agreement, we charge Jefferies Finance for services provided.

Receivables from Jefferies Finance, included in Other assets in our Consolidated Statements of Financial Condition, were $17.2 million and $35.2 million at November 30, 2019 and 2018, respectively. At November 30, 2019, payables to Jefferies Finance, related to cash deposited with us and included in Accrued expenses and other liabilities and Payables to customers in our Consolidated Statements of Financial Condition, were $13.7 million and $17.6 million, respectively. At November 30, 2018, we had $14.1 million of payables to Jefferies Finance, related to cash deposited with us and included in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition.

We enter into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts we had $4.7 million recorded in Payables—brokers, dealers and clearing organizations and $0.2 million recorded in Financial instruments sold, at fair value in our Consolidated Statements of Financial Condition at November 30, 2019. We recorded $0.2 million in Payables—brokers, dealers and clearing organizations and $0.4 million in Financial instruments sold, not yet purchased, at fair value in our Consolidated Statements of Financial Condition at November 30, 2018.

On March 28, 2019, we entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with our investment banking loan syndication activities. We repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense within our Consolidated Statements of Earnings.

Berkadia

Berkadia is a commercial mortgage banking and servicing joint venture that was formed in 2009 by Jefferies and Berkshire Hathaway Inc. On October 1, 2018, Jefferies transferred its 50% voting equity interest in Berkadia and related arrangements to us. As a result, we are entitled to receive 45% of the profits of Berkadia. 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.

The following is a summary of selected financial information for Berkadia (in millions):

	November 30,
	2019		2018
Total assets	$	2,809.8	$	3,875.8
Total liabilities	2,213.2		3,331.5
Total equity	596.6		544.3
Our total equity balance	268.9		245.2

	Year Ended  November 30, 2019		Two Months Ended November 30, 2018
Net earnings	$	195.9	$	44.4

At November 30, 2019 and 2018, we had commitments to purchase $360.4 million and $723.8 million, respectively, in agency CMBS from Berkadia. During the year ended November 30, 2019, we received $65.0 million in distributions from Berkadia on our equity interest.

JCP Fund V

The amount of our investments in JCP Fund V included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition was $20.6 million and $31.9 million at November 30, 2019 and 2018, respectively. We account for these investments at fair value based on the NAV of the funds provided by the fund managers (see Note 2, Summary of Significant Accounting Policies, herein). The following summarizes the results from these investments which are included in Principal transactions revenues in our Consolidated Statements of Earnings (in millions):

	Year Ended November 30,
	2019			2018		2017
Net gains (losses) from our investments in JCP Fund V	$	(5.7	)	$	12.1	$	(10.7	)

At both November 30, 2019 and 2018, we were committed to invest equity of up to $85.0 million in JCP Fund V. At November 30, 2019 and 2018, our unfunded commitment relating to JCP Fund V was $9.4 million and $9.7 million, respectively.

The following is a summary of selected financial information for 100.0% of JCP Fund V, in which we owned effectively 32.6% of the combined equity interests (in thousands):

	September 30,
	2019 (1)		2018 (1)
Total assets	$	63,248	$	90,731
Total liabilities	76		76
Total partners’ capital	63,172		90,655

	Nine Months Ended September 30, 2019 (1)			Three Months Ended December 31, 2018 (1)			Nine Months Ended September 30, 2018 (1)		Three Months Ended December 31, 2017 (1)		Nine Months Ended September 30, 2017 (1)			Three Months Ended December 31, 2016 (1)
Net increase (decrease) in net assets resulting from operations	$	(19,070	)	$	(8,412	)	$	15,252	$	19,712	$	(24,630	)	$	(2,294	)

(1) Financial information for JCP Fund V within our results of operations at November 30, 2019 and 2018 and for the years ended November 30, 2019, 2018 and 2017 is included based on the presented periods.

Epic Gas

On July 14, 2015, Jefferies LLC purchased common shares of Epic Gas. At November 30, 2018, we owned approximately 21.1% of the outstanding common stock of Epic Gas and one of our directors served on the Board of Directors of Epic Gas and owned common shares of Epic Gas. During the year ended November 30, 2019, we sold all of our common shares of Epic Gas, at fair value, for a total of $24.6 million. There was a gain of $2.8 million on this transaction, which is included in Other revenue in our Consolidated Statements of Earnings. At November 30, 2018, our investment in Epic Gas of $21.7 million was included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition.

The following is a summary of selected financial information for Epic Gas (in millions):

	September 30, 2018 (1)
Total assets	$	555.7
Total liabilities	312.6
Total equity	243.1

	Three Months Ended December 31, 2018 (1)		Nine Months Ended September 30, 2018 (1)			Three Months Ended December 31, 2017 (1)			Nine Months Ended September 30, 2017 (1)			Three Months Ended December 31, 2016 (1)
Net gains (losses)	$	0.9	$	(3.7	)	$	(16.4	)	$	(14.5	)	$	(15.9	)

(1) Financial information for Epic Gas in our financial position and results of operations at November 30, 2018 and for the years ended November 30, 2019, 2018 and 2017 is included based on the presented periods.

Jefferies LoanCore

Jefferies LoanCore, a commercial real estate finance company and a joint venture with the Government of Singapore Investment Corporation, the Canada Pension Plan Investment Board and LoanCore, LLC, originates and purchases commercial real estate loans throughout the U.S. and Europe. On October 31, 2017, we sold all of our membership interests (which constituted a 48.5% voting interest) in Jefferies LoanCore for approximately $173.1 million, the estimated book value at October 31, 2017. In addition, we may be entitled to additional cash consideration over the next three years in the event Jefferies LoanCore’s yearly return on equity exceeds certain thresholds. For the eleven months ended October 31, 2017, Jefferies LoanCore reported net earnings of $37.5 million. In connection with Jefferies LoanCore, we entered into master repurchase agreements and earned interest income and fees of $0.6 million during the years ended November 30, 2017, related to these agreements.

KCG

Our investment in KCG was sold on July 20, 2017. The change in the fair value of our investment in KCG was net gains of $93.4 million for the year ended November 30, 2017, and was included in Principal transactions revenues in our Consolidated Statements of Earnings. We had elected to record our investment in KCG at fair value under the fair value option, as the investment was acquired as part of our investment banking and capital markets activities. The valuation of our investment was based on the closing exchange price of KCG and included within Level 1 of the fair value hierarchy.