17.

Notes Payable, Collateralized and Short-Term Borrowings

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


	June 30, 2015		December 31, 2014
8.75% Convertible Notes	$	—	$	150,000
4.50% Convertible Notes		154,911		152,527
8.125% Senior Notes		109,084		109,022
5.375% Senior Notes		295,610		295,151
8.375% Senior Notes		255,300		—
Collateralized borrowings		26,295		—
Loans pursuant to Credit Agreement		50,000		—

Total	$	891,200	$	706,700

The Company’s Convertible Notes and Senior Notes are recorded at amortized cost. As of June 30, 2015 and December 31, 2014, the carrying amounts and estimated fair values of the Company’s Convertible Notes and Senior Notes were as follows (in thousands):


	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
8.75% Convertible Notes	$	—	$	—	$	150,000	$	220,213
4.50% Convertible Notes		154,911		169,200		152,527		170,800
8.125% Senior Notes		109,084		123,075		109,022		123,075
5.375% Senior Notes		295,610		312,750		295,151		295,500
8.375% Senior Notes		255,300		271,200		—		—

Total	$	814,905	$	876,225	$	706,700	$	809,588

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 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. On April 13, 2015, the Company’s 8.75% Convertible Notes, were fully converted into 24,042,599 shares of the Company’s Class A common stock, par value $0.01 per share, and issued to Cantor Fitzgerald L.P. The Company recorded interest expense related to the 8.75% Convertible Notes of $0.5 million and $3.3 million for the three months ended June 30, 2015 and 2014, respectively. The Company recorded interest expense related to the 8.75% Convertible Notes of $3.8 million and $6.6 million for the six months ended June 30, 2015 and 2014, respectively.

On July 29, 2011, the Company issued an aggregate of $160.0 million principal amount of 4.50% Convertible 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 $3.0 million for both the three months ended June 30, 2015 and 2014. The Company recorded interest expense related to the 4.50% Convertible Notes of $6.0 million and $5.9 million for the six months ended June 30, 2015 and 2014, respectively.

As of June 30, 2015, 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, 2015, 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 ($10.71 as of June 30, 2015, 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 $13.39 per share as of June 30, 2015. 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 14.9 million shares of BGC’s Class A common stock as of June 30, 2015, 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, 2015			December 31, 2014			June 30, 2015		December 31, 2014
Principal amount of debt component	$	160,000		$	160,000		$	—	$	150,000
Unamortized discount		(5,089	)		(7,473	)		—		—
Carrying amount of debt component		154,911			152,527			—		150,000
Equity component		18,972			18,972			—		—
Effective interest rate		7.61	%		7.61	%		—		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		$	—	$	6.25
Number of shares to be delivered upon conversion		16,260,160			16,260,160			—		23,990,604
Amount by which the notes’ if-converted value exceeds their principal amount		—			—		$	—	$	69,514

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, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Coupon interest	$	1,800	$	1,800	$	547	$	3,281
Amortization of discount		1,197		1,160		—		—

Total interest expense	$	2,997	$	2,960	$	547	$	3,281


	4.50% Convertible Notes				8.75% Convertible Notes
	For the six months ended				For the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Coupon interest	$	3,600	$	3,600	$	3,828	$	6,562
Amortization of discount		2,384		2,312		—		—

Total interest expense	$	5,984	$	5,912	$	3,828	$	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 for both the three months ended June 30, 2015 and 2014, respectively. The Company recorded interest expense related to the 8.125% Senior Notes of $4.6 million for both the six months ended June 30, 2015 and 2014, respectively.

5.375% Senior Notes

On December 9, 2014, the Company issued an aggregate of $300.0 million principal amount of 5.375% Senior Notes due 2019 (“the 5.375% Senior Notes”). The 5.375% Senior Notes are general senior unsecured obligations of the Company. These Senior Notes bear interest at a rate of 5.375% per year, payable in cash on June 9 and December 9 of each year, commencing June 9, 2015. The interest rate payable on the notes will be subject to adjustments from time to time based on the debt rating assigned by specified rating agencies to the notes, as set forth in the Indenture. The 5.375% Senior Notes will mature on December 9, 2019. The Company may redeem some or all of the notes at any time or from time to time for cash at certain “make-whole” redemption prices (as set forth in the Indenture). If a “Change of Control Triggering Event” (as defined in the Indenture) occurs, holders may require the Company to purchase all or a portion of their notes for cash at a price equal to 101% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the purchase date.

The initial carrying value of the 5.375% Senior Notes was $295.1 million, net of the discount and debt issuance costs of $4.9 million. The issuance costs are amortized as interest cost, and the carrying value of the 5.375% Senior Notes will accrete up to the face amount over the term of the notes. The Company recorded interest expense related to the 5.375% Senior Notes of $4.3 million and $8.6 million for the three and six months ended June 30, 2015, respectively. There was no interest expense related to the 5.375% Senior Notes for the three or six months ended June 30, 2014.

8.375% Senior Notes

As part of the GFI acquisition, the Company acquired $240.0 million in aggregate principal amount of 8.375% Senior Notes (the “8.375% Senior Notes”) due July 2018. The carrying value of these notes as of June 30, 2015 was $255.3 million. Interest on these notes is payable, semi-annually in arrears on the 19th of January and July. Due to the cumulative effect of downgrades to GFI’s credit rating, the 8.375% Senior Notes were subjected to 200 basis points penalty interest. On April 28, 2015, a subsidiary of the Company purchased from GFI approximately 43.0 million New Shares. This increased BGC’s ownership to approximately 67% of GFI’s outstanding common stock and gives us the ability to control the timing and process with respect to a full merger. Also on July 10, 2015, the Company guaranteed the obligations of GFI under the 8.375% Senior Notes. These actions resulted in recent upgrades of GFI’s credit ratings which reduces the penalty interest to 25 basis points effective July 19, 2015. The Company recorded interest expense related to the 8.375% Senior Notes of $6.2 million and $8.3 million for the three and six months ended June 30, 2015, respectively.

Collateralized Borrowings

Secured loan arrangements

On March 13, 2015, the Company entered into a secured loan arrangement of $28.2 million under which it pledged certain fixed assets as security for the loan. This arrangement incurs interest at a fixed rate of 3.70% and matures on March 11, 2019. The Company did not have any secured loan arrangements outstanding as of December 31, 2014. As of June 30, 2015, the Company had a $26.3 million secured loan arrangement outstanding which includes $0.3 million of deferred financing costs. The value of the fixed assets pledged as of June 30, 2015 was $16.0 million.

The Company recorded interest expense related to the secured loan arrangement of $0.2 million for the three months ended June 30, 2015. The Company did not have any secured loan arrangements outstanding as of June 30, 2014. The Company recorded interest expense related to the secured loan arrangement of $0.3 million for the six months ended June 30, 2015.

Short Term Borrowings

As part of the GFI Acquisition, the Company acquired a credit agreement as amended, (the “Credit Agreement”) with Bank of America, N.A. and certain other lenders. The Credit Agreement provides for maximum revolving loans of up to $75.0 million through December 2015. The interest rate of the outstanding loan under the credit agreement was 5.75% as of June 30, 2015. As of June 30, 2015 there was $50.0 million of borrowings outstanding. For the three and six months ended June 30, 2015, the Company recorded interest expense related to the Credit Agreement of $0.8 million and $1.0 million, respectively.