15.

Notes Payable, Collateralized and Short-Term Borrowings

Notes payable, collateralized and short-term borrowings consisted of the following (in thousands):


	June 30, 2013		December 31, 2012
8.75% Convertible Notes	$	150,000	$	150,000
4.50% Convertible Notes		145,595		143,354
8.125% Senior Notes		108,842		108,780
Collateralized borrowings		19,368		49,310

Total	$	423,805	$	451,444

The Company’s Convertible Notes and 8.125% Senior Notes are recorded at amortized cost. The carrying amounts and estimated fair values of the Company’s Convertible Notes and 8.125% Senior Notes were as follows (in thousands):


	June 30, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
8.75% Convertible Notes	$	150,000	$	180,023	$	150,000	$	155,718
4.50% Convertible Notes		145,595		162,600		143,354		147,200
8.125% Senior Notes		108,842		119,790		108,780		116,955

Total	$	404,437	$	462,413	$	402,134	$	419,873

The fair value of the 8.75% Convertible Notes was estimated based on a jump-diffusion convertible pricing model, which among other inputs incorporates the scheduled coupon and principal payments, the conversion feature inherent in the 8.75% Convertible Notes, the Company’s Class A common stock price and a stock price volatility assumption. The stock price volatility assumptions are based on the historic volatility of the Company’s Class A common stock. The fair value measurements of the 8.75% Convertible Notes are based on significant inputs observable in the market and are considered Level 2 within the fair value hierarchy. The fair values of the 8.125% Senior Notes and 4.50% Convertible Notes were determined using observable market prices as these securities are traded and are considered Level 1 and Level 2, respectively, within the fair value hierarchy, based on whether they are deemed to be actively traded.

Convertible Notes

On April 1, 2010, BGC Holdings issued an aggregate of $150.0 million principal amount of the 8.75% Convertible Notes to Cantor in a private placement transaction. The Company used the proceeds of the 8.75% Convertible Notes to repay $150.0 million principal amount of Senior Notes that matured on April 1, 2010. The 8.75% Convertible Notes are senior unsecured obligations and rank equally and ratably with all existing and future senior unsecured obligations of the Company. The 8.75% Convertible Notes bear an annual interest rate of 8.75%, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2010, and were convertible into 23.6 million shares of Class A common stock as of June 30, 2013. The 8.75% Convertible Notes will mature on April 15, 2015, unless earlier repurchased, exchanged or converted. The Company recorded interest expense related to the 8.75% Convertible Notes of $3.3 million for both the three months ended June 30, 2013 and the three months ended June 30, 2012. The Company recorded interest expense related to the 8.75% Convertible Notes of $6.6 million for both the six months ended June 30, 2013 and the six months ended June 30, 2012.

As of June 30, 2013, the 8.75% Convertible Notes were convertible, at the holder’s option, at a conversion rate of 157.1566 shares of Class A common stock per $1,000 principal amount of notes, subject to customary adjustments upon certain corporate events, including stock dividends and stock splits on the Class A common stock and the Company’s payment of a quarterly cash dividend in excess of $0.10 per share of Class A common stock. The conversion rate will not be adjusted for accrued and unpaid interest to the conversion date.

On July 29, 2011, the Company issued an aggregate of $160.0 million principal amount of 4.50% Convertible Senior Notes due 2016. The 4.50% Convertible Notes are general senior unsecured obligations of the Company. The 4.50% Convertible Notes pay interest semiannually at a rate of 4.50% per annum and were priced at par. The 4.50% Convertible Notes will mature on July 15, 2016, unless earlier repurchased, exchanged or converted. The Company recorded interest expense related to the 4.50% Convertible Notes of $2.9 million for both the three months ended June 30, 2013 and the three months ended June 30, 2012. The Company recorded interest expense related to the 4.50% Convertible Notes of $5.8 million for both the six months ended June 30, 2013 and the six months ended June 30, 2012.

As of June 30, 2013, the 4.50% Convertible Notes were convertible, at the holder’s option, at a conversion rate of 101.6260 shares of Class A common stock per $1,000 principal amount of notes, subject to adjustment in certain circumstances, including stock dividends and stock splits on the Class A common stock and the Company’s payment of a quarterly cash dividend in excess of $0.17 per share of Class A common stock. Upon conversion, the Company will pay or deliver cash, shares of the Company’s Class A common stock, or a combination thereof at the Company’s election. As of June 30, 2013, the 4.50% Convertible Notes were convertible into approximately 16.3 million shares of Class A common stock.

As prescribed by FASB guidance, Debt, the Company recognized the value of the embedded conversion feature of the 4.50% Convertible Notes as an increase to “Additional paid-in capital” of approximately $19.0 million on a pre-tax basis ($16.1 million net of taxes and issuance costs). The embedded conversion feature was measured as the difference between the proceeds received and the fair value of a similar liability without the conversion feature. The value of the conversion feature is treated as a debt discount and reduced the initial carrying value of the 4.50% Convertible Notes to $137.2 million, net of debt issuance costs of $3.8 million allocated to the debt component of the instrument. The discount is amortized as interest cost and the carrying value of the 4.50% Convertible Notes will accrete up to the face amount over the term of the 4.50% Convertible Notes.

In connection with the offering of the 4.50% Convertible Notes, the Company entered into capped call transactions, which are expected to reduce the potential dilution of the Company’s Class A common stock upon any conversion of the 4.50% Convertible Notes in the event that the market value per share of the Company’s Class A common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions ($10.17 as of June 30, 2013, subject to adjustment in certain circumstances). The capped call transactions had an initial cap price equal to $12.30 per share (50% above the last reported sale price of the Company’s Class A common stock on the NASDAQ on July 25, 2011), and had a cap price equal to approximately $12.72 per share as of June 30, 2013. The purchase price of the capped call transactions resulted in a decrease to “Additional paid-in capital” of $11.4 million on a pre-tax basis ($9.9 million on an after-tax basis). The capped call transactions cover approximately 15.7 million shares of BGC’s Class A common stock as of June 30, 2013, subject to adjustment in certain circumstances.

Below is a summary of the Company’s Convertible Notes (in thousands, except share and per share amounts):


	4.50% Convertible Notes						8.75% Convertible Notes
	June 30, 2013			December 31, 2012			June 30, 2013			December 31, 2012
Principal amount of debt component	$	160,000		$	160,000		$	150,000		$	150,000
Unamortized discount		(14,405	)		(16,646	)		—			—
Carrying amount of debt component		145,595			143,354			150,000			150,000
Equity component		18,972			18,972			—			—
Effective interest rate		7.61	%		7.61	%		8.75	%		8.75	%
Maturity date (period through which discount is being amortized)		7/15/2016			7/15/2016			4/15/2015			4/15/2015
Conversion price	$	9.84		$	9.84		$	6.36		$	6.41
Number of shares to be delivered upon conversion		16,260,160			16,260,160			23,573,484			23,384,070
Amount by which the notes’ if-converted value exceeds their principal amount	$	—		$	—		$	—		$	—

Below is a summary of the interest expense related to the Company’s Convertible Notes (in thousands):


	4.50% Convertible Notes				8.75% Convertible Notes
	For the three months ended				For the three months ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Coupon interest	$	1,800	$	1,800	$	3,281	$	3,281
Amortization of discount		1,125		1,090		—		—

Total interest expense	$	2,925	$	2,890	$	3,281	$	3,281


	4.50% Convertible Notes				8.75% Convertible Notes
	For the six months ended				For the six months ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Coupon interest	$	3,600	$	3,600	$	6,562	$	6,562
Amortization of discount		2,241		2,172		—		—

Total interest expense	$	5,841	$	5,772	$	6,562	$	6,562

8.125% Senior Notes

On June 26, 2012, the Company issued an aggregate of $112.5 million principal amount of 8.125% Senior Notes due 2042. The 8.125% Senior Notes are senior unsecured obligations of the Company. The 8.125% Senior Notes may be redeemed for cash, in whole or in part, on or after June 26, 2017, at the Company’s option, at any time and from time to time, until maturity at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued but unpaid interest on the principal amount being redeemed to, but not including, the redemption date. The 8.125% Senior Notes are listed on the New York Stock Exchange under the symbol “BGCA.” The Company used the proceeds to repay short-term borrowings under its unsecured revolving credit facility and for general corporate purposes, including acquisitions.

The initial carrying value of the 8.125% Senior Notes was $108.7 million, net of debt issuance costs of $3.8 million. The issuance costs are amortized as interest cost, and the carrying value of the 8.125% Senior Notes will accrete up to the face amount over the term of the 8.125% Senior Notes. The Company recorded interest expense related to the 8.125% Senior Notes of $2.3 million and $0.1 million for the three months ended June 30, 2013 and 2012, respectively. The Company recorded interest expense related to the 8.125% Senior Notes of $4.6 million and $0.1 million for the six months ended June 30, 2013 and 2012, respectively.

Collateralized Borrowings

On various dates beginning in 2009 and most recently in December 2012, the Company entered into secured loan arrangements under which it pledged certain fixed assets in exchange for loans. The secured loan arrangements have fixed rates between 2.62% and 8.09% per annum and are repayable in consecutive monthly installments with the final payments due in December 2016. The outstanding balance of the secured loan arrangements was $19.4 million and $37.6 million as of June 30, 2013 and December 31, 2012, respectively. The value of the fixed assets pledged was $16.9 million and $32.1 million as of June 30, 2013 and December 31, 2012, respectively. The secured loan arrangements are guaranteed by the Company. The Company recorded interest expense related to the secured loan arrangements of $0.6 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively. The Company recorded interest expense related to the secured loan arrangements of $0.9 million and $0.7 million for the six months ended June 30, 2013 and 2012, respectively.

During the three months ended June 30, 2013, the Company prepaid $12.2 million related to the secured loan arrangements. As a result of the prepayment, the Company incurred $0.1 million of early termination fees and recognized $0.1 million as a result of the acceleration of deferred financing costs, which are recorded in “Interest expense” in the Company’s unaudited condensed consolidated statements of operations.

On various dates during the years ended December 31, 2011 and 2010, the Company sold certain furniture, equipment and software for $34.2 million, net of costs and concurrently entered into agreements to lease the property back. The principal and interest on the leases were repayable in equal monthly installments for terms of 36 months (software) and 48 months (furniture and equipment) with maturities through September 2014.

During the three months ended June 30, 2013, the Company terminated the leases and prepaid the outstanding balance of $7.4 million. As a result of the prepayment, the Company incurred $0.1 million of early termination fees and recognized $0.2 million as a result of the acceleration of deferred financing costs, which are recorded in “Interest expense” in the Company’s unaudited condensed consolidated statements of operations.

Because the leases were terminated during the three months ended June 30, 2013, the Company had no outstanding balance or fixed assets pledged related to the leases as of June 30, 2013. As of December 31, 2012, the outstanding balance of the leases and the value of the fixed assets pledged were $11.7 million and $8.3 million, respectively. The Company recorded interest expense of $0.4 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively. The Company recorded interest expense of $0.6 million for both the six months ended June 30, 2013 and the six months ended June 30, 2012.

Because assets reverted back to the Company at the end of the leases, the transactions were capitalized. As a result, consideration received from the purchaser was included in the Company’s unaudited condensed consolidated statements of financial condition as a financing obligation, and payments made under the lease were recorded as interest expense (at an effective rate of approximately 6%). Depreciation on these fixed assets was charged to “Occupancy and equipment” in the Company’s unaudited condensed consolidated statements of operations.

Credit Agreement

On June 23, 2011, the Company entered into a credit agreement with a bank syndicate (the “Credit Agreement”) which provides for up to $130.0 million of unsecured revolving credit through September 23, 2013. Borrowings under the Credit Agreement will bear interest at a per annum rate equal to, at the Company’s option, either (a) a base rate equal to the greatest of (i) the prime rate as established by the Administrative Agent from time to time, (ii) the average federal funds rate plus 0.5%, and (iii) the reserve adjusted one-month LIBOR reset daily plus 1.0%, or (b) the reserve adjusted LIBOR for interest periods of one, two, three or six months, as selected by the Company, in each case plus an applicable margin. The applicable margin will initially be 2.0% with respect to base rate borrowings in (a) above and 3.0% with respect to borrowings selected as LIBOR borrowings in (b) above, but may increase to a maximum of 3.0% and 4.0%, respectively, depending upon the Company’s credit rating. The Credit Agreement also provides for an unused facility fee and certain upfront and arrangement fees. The Credit Agreement requires that the outstanding loan balance be reduced to zero every 270 days for three days. The Credit Agreement further provides for certain affirmative and negative covenants including financial covenants, such as minimum equity, tangible equity and interest coverage, as well as maximum levels for total assets to equity capital and debt to equity. On June 20, 2013, the Company entered into the Second Amendment to Credit Agreement and Waiver, pursuant to which the parties agreed to a three-month extension of the termination date of the Credit Agreement to September 23, 2013 and a waiver of certain provisions of the Credit Agreement in connection with the NASDAQ OMX Transaction and the Company’s possible hedge of NASDAQ shares to be received in the earn-out portion of the transaction consideration.

As of both June 30, 2013 and December 31, 2012, there were no borrowings outstanding under the Credit Agreement. The Company recorded interest expense related to the Credit Agreement of $0.1 million and $0.7 million for the three months ended June 30, 2013 and 2012, respectively. The Company recorded interest expense related to the Credit Agreement of $0.2 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively.