9. Borrowings

Outstanding borrowings and financing capacity or unused available capacity under the Company’s borrowing arrangements were as follows:



	At September 30, 2017				At December 31, 2016
		Financing		Borrowing		Financing		Borrowing
(in thousands)		Available		Outstanding		Available		Outstanding
Broker-dealer credit facilities:
Uncommitted facility	$	125,000	$	15,000	$	125,000	$	25,000
Committed facility		—		—		75,000		—
	$	125,000	$	15,000	$	200,000	$	25,000

Short-Term Credit Facilities:
Short-term credit facilities (1)	$	543,000	$	159,128	$	493,000	$	309,086
	$	543,000	$	159,128	$	493,000	$	309,086

_____________________________________

(1)

Outstanding borrowings were included with receivable from broker-dealers and clearing organization within the consolidated statements of financial condition.



		At September 30, 2017				At December 31, 2016
	Maturity		Unused Available		Borrowing		Unused Available		Borrowing
(in thousands)	Date		Capacity		Outstanding		Capacity		Outstanding
Long-term borrowings:
Senior secured credit facility	December 2021	$	n/a	$	928,089	$	n/a	$	535,104
Senior secured Second Lien Notes	June 2022		n/a		475,485		n/a		n/a
Revolving credit facility	April 2018		—		—		100,000		—
SBI bonds	January 2020		n/a		31,055		n/a		29,853
		$	0	$	1,434,629	$	100,000	$	564,957

Broker-Dealer Credit Facilities

The Company is a party to two secured credit facilities with the same financial institution to finance overnight securities positions purchased as part of its ordinary course broker-dealer market making activities. One of the facilities (the “Uncommitted Facility”), is provided on an uncommitted basis and is available for borrowings by the Company’s broker-dealer subsidiaries up to a maximum amount of $125.0 million. In connection with this credit facility, the Company has entered into demand promissory notes dated February 20, 2013. The loans provided under the Uncommitted Facility are collateralized by the Company’s broker-dealer trading and deposit accounts with the same financial institution and, bear interest at a rate set by the financial institution on a daily basis 2.16% at September 30, 2017 and 1.66% at December 31, 2016). The Company was party to another facility (the “Committed Facility”) with the same financial institution dated July 22, 2013 and subsequently amended on March 26, 2014, July 21, 2014, April 24, 2015, and July 18, 2016, which is provided on a committed basis and is available for borrowings by one of the Company’s broker-dealer subsidiaries up to a maximum of the lesser of $75.0 million or an amount determined based on agreed advance rates for pledged securities. The Committed Facility was terminated as of September 30, 2017. Interest expense for the three months ended September 30, 2017 and 2016 was approximately $0.4 million and $0.3 million, respectively, and for the nine months ended September 30, 2017 and 2016 was approximately $1.4 million and $0.8 million, respectively. Interest expense is included within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income (loss).

Short-Term Credit Facilities

The Company maintains short-term credit facilities with various prime brokers and other financial institutions from which it receives execution or clearing services. The proceeds of these facilities are used to meet margin requirements associated with the products traded by the Company in the ordinary course, and amounts borrowed are collateralized by the Company’s trading accounts with the applicable financial institution. Borrowings bore interest at a weighted average interest rate of 3.56% and 3.12% per annum, as September 30, 2017 and December 31, 2016, respectively. Interest expense in relation to the facilities for the three months ended September 30, 2017 and 2016 was approximately $1.4 million and $1.8 million, respectively, and for the nine months ended September 30, 2017 and 2016 was $4.8 million and $5.0 million, respectively. Interest expense is recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income (loss).

Long-Term Borrowings

Senior Secured Credit Facility

On July 8, 2011, Virtu Financial, its wholly owned subsidiary, VFH Parent LLC (“VFH”), and each of its unregulated domestic subsidiaries entered into the credit agreement (the “Credit Agreement”) among VFH, Virtu Financial, Credit Suisse AG, as administrative agent, and the other parties thereto. The Credit Agreement was amended on February 5, 2013, May 1, 2013, November 8, 2013 and October 27, 2016.

On June 30, 2017, Virtu Financial and VFH entered into a fourth amended and restated credit agreement (the “Fourth Amended and Restated Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, sole lead arranger and bookrunner, which amended and restated in its entirety the existing Credit Agreement. The Fourth Amended and Restated Credit Agreement provided for a $540.0 million first lien secured term loan, drawn in its entirety on June 30, 2017, and continued VFH’s existing $100.0 million first lien senior secured revolving credit facility. Also on June 30, 2017, Orchestra Borrower LLC (the “Escrow Issuer”), a wholly owned subsidiary of the Company, entered into an escrow credit agreement (the “Escrow Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, sole lead arranger and bookrunner, which provided for the $610.0 million term loan (the “Escrow Term Loan”), the proceeds of which were deposited into escrow pending the closing of the Acquisition.

Upon the closing of the Acquisition, the proceeds of the Escrow Term Loan were released to fund in part the Acquisition consideration, the obligations of the Escrow Issuer in respect of the Escrow Term Loan were assumed by VFH Parent and the Escrow Term Loan was deemed to be outstanding under the Fourth Amended and Restated Credit Agreement and the Escrow Credit Agreement and related credit documents automatically terminated and were superseded by the provisions of the Fourth Amended and Restated Credit Agreement, In addition, the revolving credit facility under the Fourth Amended and Restated Credit Agreement terminated.

Under the Fourth Amended and Restated Credit Agreement, the $1,150.0 million aggregate principal amount of first lien senior secured term loans, including the Escrow Term Loan (the “Term Loan Facility”), was scheduled to mature on December 30, 2021 and will require scheduled annual amortization payments on each of the first four anniversaries of the Closing Date in an amount equal to the sum of 7.5% of the original aggregate principal amount of the term loan issued under the Fourth Amended and Restated Credit Agreement and 7.5% of the aggregate principal amount of the Escrow Term Loan outstanding on the Closing Date. During the three months ended September 30, 2017, $200.0 million was repaid under the Fourth Amended and Restated Credit Agreement. As of September 30, 2017, $950.0 million was outstanding under the Fourth Amended and Restated Credit Agreement.

All obligations under the Term Loan Facility are unconditionally guaranteed by Virtu Financial and VFH’s existing direct and indirect wholly-owned domestic restricted subsidiaries (including, KCG and its wholly-owned domestic restricted subsidiaries), subject to certain exceptions, including exceptions for our broker dealer subsidiaries and certain immaterial subsidiaries. The Term Loan Facility and related guarantees are secured by first-priority perfected liens, subject to certain exceptions, on substantially all of VFH’s and the guarantors’ existing and future assets, including substantially all material personal property and a pledge of the capital stock of VFH, the guarantors (other than Virtu Financial) and the direct domestic subsidiaries of VFH and the guarantors and 100% of the non-voting capital stock and up to 65% of the voting capital stock of foreign subsidiaries that are directly owned by VFH or any of the guarantors.

Amounts outstanding under the Fourth Amended and Restated Credit Agreement bear interest as follows:

in the case of the term loans, at VFH’s option, at either (a) the greatest of (i) the prime rate in effect, (ii) the NYFRB rate plus 0.50%, (iii) the adjusted LIBOR rate for a Eurodollar borrowing with a one month interest period plus 1.00%, and (iv) 2.00% plus, in each case, 2.75% per annum; or (b) the greater of (i) the adjusted LIBOR rate for the interest period then in effect and (ii) 1.00% plus, in each case, 3.75% per annum; and

in the case of revolving loans, at VFH’s option, at either (a) the greatest of (i) the prime rate in effect, (ii) the NYFRB rate plus 0.50%, (iii) the adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1.00%, and (iv) 1.00% plus, in each case, 2.00% per annum; or (b) the greater of (i) the adjusted LIBOR rate for the interest period then in effect and (ii) zero plus, in each case, 3.00% per annum.

Under the Fourth Amended and Restated Credit Agreement, we must comply on a quarterly basis with:

a maximum total leverage ratio of 5.00 to 1.0 with a step-down to (i) 4.25 to 1.0 from and after the fiscal quarter ending March 31, 2019, (ii) 3.50 to 1.0 from and after the fiscal quarter ending March 31, 2020 and (iii) 3.25 to 1.0 from the fiscal quarter ending March 31, 2021 and thereafter; and

a minimum interest coverage ratio of 2.75 to 1.0, stepping up to 3.00 to 1.0 from and after the fiscal quarter ending March 31, 2019.

The Fourth Amended and Restated Credit Agreement contains certain customary affirmative covenants. The negative covenants in the Fourth Amended and Restated Credit Agreement include, among other things, limitations on our ability to do the following, subject to certain exceptions: (i) incur additional debt; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted junior payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell or otherwise dispose of assets, including equity interests in our subsidiaries; (vii) enter into certain transactions with our affiliates; (viii) enter into swaps, forwards and similar agreements; (ix) enter into sale-leaseback transactions; (x) restrict liens and subsidiary dividends; (xi) change our fiscal year; and (xii) modify the terms of certain debt agreements.

The Fourth Amended and Restated Credit Agreement contains certain customary events of default, including relating to a change of control. If an event of default occurs and is continuing, the lenders under the Fourth Amended and Restated Credit Agreement will be entitled to take various actions, including the acceleration of amounts outstanding under the Fourth Amended and Restated Credit Agreement and all actions permitted to be taken by a secured creditor in respect of the collateral securing the obligations under the Fourth Amended and Restated Credit Agreement.

In connection with the refinancing and the $200 million debt repayment, the Company accelerated certain unamortized financing costs incurred in connection with the credit facility that were scheduled to be amortized over the term of the loan, including original issue discount and underwriting and legal fees. During the three and nine months ended September 2017, the Company recorded $4.9 million and $9.4 million, respectively, in such costs which is included within debt issue cost related to debt refinancing in the condensed consolidated statements of comprehensive income.

Senior Secured Second Lien Notes

On June 16, 2017, the Escrow Issuer and Orchestra Co-Issuer, Inc. (the “Co-Issuer”) completed the offering of $500 million aggregate principal amount of 6.750% Senior Secured Second Lien Notes due 2022 (the “Notes”). The Notes were issued under an Indenture, dated June 16, 2017 (the “Indenture”), among the Escrow Issuer, the Co-Issuer and U.S. Bank National Associations, as trustee and collateral agent. The Notes mature on June 15, 2022. Interest on the Notes accrues at 6.750% per annum, payable every six months through maturity on each June 15 and December 15, beginning on December 15, 2017.

On July 20, 2017, VFH assumed all of the obligations of the Escrow Issuer under the Indenture and the Notes. The Notes are guaranteed by Virtu Financial and each of Virtu Financial’s wholly-owned domestic restricted subsidiaries that guarantees the Fourth Amended and Restated Credit Agreement, including KCG and certain of its subsidiaries and the Escrow Issuer. We refer to VFH and the Co-Issuer together as, the “Issuers.”

The Notes and the related guarantees are secured by second-priority perfected liens on substantially all of the Issuers’ and guarantors’ existing and future assets, subject to certain exceptions, including all material personal property, a pledge of the capital stock of the Issuers, the guarantors (other than Virtu Financial) and the direct subsidiaries of the Issuers and the guarantors and up to 65.0% of the voting capital stock of any now-owned or later-acquired foreign subsidiaries that are directly owned by the Issuers or any of the guarantors, which assets will also secure obligations under the Fourth Amended and Restated Credit Agreement on a first-priority basis.

Prior to June 15, 2019, the Company may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to (but not including) the date of redemption, plus an applicable “make whole” premium (calculated based upon the yield of certain U.S. treasury securities plus 0.50%).

Prior to June 15, 2019, the Company may redeem up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 106.750% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but not including) the date of redemption with the net cash proceeds from certain equity offerings.

Upon the occurrence of specified change of control events as defined in the indenture governing the Notes, the Company must offer to repurchase the Notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to (but excluding) the purchase date.

On or after June 15, 2019, the Company may redeem some or all of the Notes, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to (but not including) the date of redemption, if redeemed during the 12-month period beginning on June 15 of the years indicated below:


Period			Percentage
2019			103.375%
2020			101.688%
2021 and thereafter			100.000%

The Indenture imposes certain limitations on the Company’s ability to (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) pay dividends, make certain investments and make repayments on indebtedness that is subordinated in right of payment to the Notes and make other “restricted payments”; (iii) create liens on their assets to secure debt; (iv) enter into transactions with affiliates; (v) merge, consolidate or amalgamate with another company; (vi) transfer and sell assets; and (vii) permit restrictions on the payment of dividends by Virtu Financial’s subsidiaries. The Indenture also contains customary events of default, including, among others, payment defaults related to the failure to pay principal or interest on Notes, covenant defaults, final maturity default or cross-acceleration with respect to material indebtedness and certain bankruptcy events. The gross proceeds from the Notes were deposited into a segregated escrow account with an escrow agent. The proceeds were released from escrow as of the Closing Date and were used to finance, in part, the Acquisition, and to repay certain indebtedness of the Company and KCG. (See Note 3 for more details).

SBI Bonds

On July 25, 2016, VFH issued Japanese Yen Bonds (collectively the “SBI Bonds”) in the aggregate principal amount of ¥3.5 billion ($31.1 million at issuance date) to SBI Life Insurance Co., Ltd. and SBI Insurance Co., Ltd. The proceeds from the SBI Bonds were used to partially fund the investment in SBI Japannext Co., Ltd (as described in Note 10). The SBI Bonds were issued bearing interest at the rate per annum of 4.0% until their scheduled maturity on January 6, 2020. Following the consummation of the Refinancing Transaction and in accordance with the terms and conditions of the SBI Bonds, the rate per annum was increased to 5.0% as of October 2016. The SBI Bonds are guaranteed by Virtu Financial. The SBI Bonds are subject to fluctuations on the Japanese Yen currency rates relative to the Company’s reporting currency (U.S. Dollar) with the changes reflected in other, net in the condensed consolidated statements of comprehensive income (loss). The principal balance was ¥3.5 billion $31.1 million) as of September 30, 2017 and the Company recorded a loss of $0.05 million and $1.5 million due to the change in currency rates during the nine months ended September 30, 2017 and 2016, respectively, and recorded a loss of $0.001 million and $1.5 million during the three months ended September 30, 2017 and 2016, respectively.

Aggregate future required minimum principal payments based on the terms of the long-term borrowings at September 30, 2017 were as follows:


(in thousands)
2017	$	—
2018		—
2019		—
2020 and thereafter		1,481,108
Total principal of long-term borrowings	$	1,481,108

The below table contains a reconciliation of the long term borrowings principal amount to the secured credit facility recorded in the condensed consolidated statements of financial condition:


		At September 30,		At December 31,
(in thousands)	2017		2016
Senior secured first lien term loan outstanding principal	$	950,000	$	540,000
Senior secured second lien notes outstanding principal		500,000		—
SBI Bonds outstanding principal		31,108		29,925
Net deferred financing fees		(45,237)		(4,012)
Net discount on senior secured credit facility		(1,242)		(956)
Long-term borrowings	$	1,434,629	$	564,957