Investments

3 Months Ended

Feb. 29, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investments

Investments

At February 29, 2020, 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 11% and 49% 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.

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 February 29, 2020, we and MassMutual each had equity commitments to Jefferies Finance of $750.0 million, for a combined total commitment of $1.5 billion. At February 29, 2020, we had funded $652.4 million of our $750.0 million commitment, leaving $97.6 million unfunded. The investment commitment is scheduled to expire on March 1, 2021 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 February 29, 2020. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2021 with automatic one year extensions absent a 60 days termination notice by either party. At February 29, 2020, 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):

	Three Months Ended
	February 29, 2020		February 28, 2019
Interest income	$	0.8	$	—
Unfunded commitment fees	0.3		0.3

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

	February 29, 2020		November 30, 2019
Our total equity balance	$	652.4	$	642.0

	Three Months Ended
	February 29, 2020		February 28, 2019
Net earnings (loss)	$	20.7	$	(2.4	)

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

	Three Months Ended
	February 29, 2020		February 28, 2019
Origination and syndication fee revenues (1)	$	37.7	$	21.9
Origination fee expenses (1)	5.6		5.4
CLO placement fee revenues (2)	0.4		1.3
Underwriting fees (3)	0.3		—
Service fees (4)	25.2		27.1

(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 February 29, 2020 and November 30, 2019, we held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.

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

(4) 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 $18.3 million and $17.2 million at February 29, 2020 and November 30, 2019, respectively. At February 29, 2020, 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 $8.5 million, 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.

We enter into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts we had $0.4 million recorded in Financial instruments owned, at fair value, in our Consolidated Statements of Financial Condition at February 29, 2020. We recorded $4.7 million in Payables—brokers, dealers and clearing organizations and $0.2 million in Financial instruments sold, not yet purchased, at fair value, in our Consolidated Statements of Financial Condition at November 30, 2019. Net gain on these contracts was $1.4 million for the three months ended February 29, 2020.

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):

	February 29, 2020		November 30, 2019
Our total equity balance	$	255.0	$	268.9

	Three Months Ended
	February 29, 2020		February 28, 2019
Net earnings	$	48.7	$	50.3

At February 29, 2020 and November 30, 2019, we had commitments to purchase $328.3 million and $360.4 million, respectively, in agency CMBS from Berkadia. During the three months ended February 29, 2020 and February 28, 2019, we received $36.2 million and $17.3 million, respectively, 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 $21.8 million and $20.6 million at February 29, 2020 and November 30, 2019, 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, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019). The following summarizes the results from these investments which are included in Principal transactions revenues in our Consolidated Statements of Earnings (in millions):

	Three Months Ended
	February 29, 2020		February 28, 2019
Net gains (losses) from our investments in JCP Fund V	$	1.5	$	(3.2	)

At both February 29, 2020 and November 30, 2019, we were committed to invest equity of up to $85.0 million in JCP Fund V. At February 29, 2020 and November 30, 2019, our unfunded commitment relating to JCP Fund V was $9.2 million and $9.4 million, respectively.

The following is a summary of the Net change in net assets resulting from operations for 100.0% of JCP Fund V, in which we owned effectively 34.5% of the combined equity interests (in thousands):

	Three Months Ended December 31,
	2019 (1)			2018 (1)
Net decrease in net assets resulting from operations	$	(1,397	)	$	(8,412	)

(1) Financial information for JCP Fund V within our results of operations for the three months ended February 29, 2020 and February 28, 2019 is included based on the presented periods.

Epic Gas

On July 14, 2015, Jefferies LLC purchased common shares of Epic Gas. At February 28, 2019, 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 three months ended May 31, 2019, we sold all of our common shares of Epic Gas, at fair value, for a total of $24.6 million. At February 28, 2019, our investment in Epic Gas of $22.1 million was included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition. For the three months ended December 31, 2018, Epic Gas reported net earnings of $0.9 million, which was included in our results of operations for the three months ended February 28, 2019.