10. Borrowings

Broker-Dealer Credit Facilities

The Company is a party to two secured credit facilities with a 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 collateralized by one of the Company’s broker-dealer subsidiaries trading and deposit account with the financial institution.

On November 3, 2017, the Company entered the second credit facility (“Revolving Credit Facility”) with the same financial institution for an aggregated borrowing limit of $500.0 million. The Revolving Credit Facility consists two borrowing bases: Borrowing Base A Loan is to be used to finance the purchase and settlement of securities; Borrowing Base B Loan is to be used to fund margin deposit with the NSCC. Each of the three broker-dealers has a sublimit under Borrowing Base A Loan, from $25.0 million to $500.0 million, which bears interest at the adjusted LIBOR or base rate plus 1.25% per annum. Two out of the three broker-dealers have sublimit under Borrowing Base B Loan, from $40.0 million to $100.0 million, which bears interest at the adjusted LIBOR or base rate plus 2.50% per annum. A commitment fee of 0.50% per annum on the average daily unused portion of this facility is payable quarterly in arrears.

The following summarizes the Company’s broker-dealer credit facilities carrying value, net of unamortized debt issuance costs, where applicable:


	At December 31, 2017
			Financing		Outstanding		Deferred Debt		Outstanding
(in thousands)	Interest Rate		Available		Principal		Issuance Cost		Borrowings, net
Broker-dealer credit facilities:
Uncommitted facility	2.42%	$	150,000	$	25,000	$	—	$	25,000
Revolving credit facility	2.81%		500,000		7,000		(4,117)		2,883
		$	650,000	$	32,000	$	(4,117)	$	27,883


	At December 31, 2016
			Financing		Borrowing		Deferred Debt		Outstanding
(in thousands)	Interest Rate		Available		Outstanding		Issuance Cost		Borrowings, net
Broker-dealer credit facilities:
Uncommitted facility	1.66%	$	125,000	$	25,000	$	—	$	25,000
Committed facility (1)	n/a		75,000		—		—		—
		$	200,000	$	25,000	$	—	$	25,000

The following summarizes interest expense for the broker-dealer facilities. Interest expense is included within interest and dividends expense in the accompanying consolidated statements of comprehensive income.


	For the Years Ended December 31,
(in thousands)		2017		2016		2015
Broker-dealer credit facilities:
Uncommitted facility	$	1,667	$	1,191	$	903
Committed facility (1)		33		41		15
Revolving credit facility		19		—		—
	$	1,719	$	1,232	$	918

(1)

Facility was terminated in July 2017.

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.


	At December 31, 2017
	Weighted Average		Financing		Borrowing
	Interest Rate		Available		Outstanding
Short-Term Credit Facilities:
Short-term credit facilities (2)	3.86%	$	543,000	$	205,677
		$	543,000	$	205,677


	At December 31, 2016
	Weighted Average		Financing		Borrowing
	Interest Rate		Available		Outstanding
Short-Term Credit Facilities:
Short-term credit facilities (2)	3.12%	$	493,000	$	309,086
		$	493,000	$	309,086

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

Interest expense in relation to the facilities for the years ended December 31, 2017, 2016 and 2015 was approximately $6.6 million, $6.3 million, and $5.5 million, respectively.

Long-Term Borrowings

The following summarizes the Company’s long-term borrowings, net of unamortized discount and debt issuance costs, where applicable:


		At December, 2017
	Maturity	Interest		Outstanding				Deferred Debt		Outstanding
(in thousands)	Date	Rate		Principal		Discount		Issuance Cost		Borrowings, net
Long-term borrowings:
Fourth Amended and Restate Credit Agreement	December 2021	5.13%	$	900,000	$	(999)	$	(18,504)	$	880,497
Senior secured Second Lien Notes	June 2022	6.75%		500,000		—		(22,961)		477,039
SBI bonds	January 2020	5.00%		31,059		—		(47)		31,012
			$	1,431,059	$	(999)	$	(41,512)	$	1,388,548


		At December 31, 2016
	Maturity	Interest		Outstanding				Deferred Debt		Outstanding
(in thousands)	Date	Rate		Principal		Discount		Issuance Cost		Borrowings, net
Long-term borrowings:
Senior secured credit facility	December 2021	4.25%	$	540,000	$	(956)	$	(3,941)	$	535,103
Revolving credit facility	(3)	5.50%		—		—		—		—
SBI bonds	January 2020	5.00%		29,925		—		(71)		29,854
			$	569,925	$	(956)	$	(4,012)	$	564,957

(3) Prior to the Fourth Amended Restated Credit Agreement described below, the Company entered into a revolving credit facility with the lenders for an aggregated commitment of $100.0 million. This facility was terminated in July 2017 as a result of refinancing.

Fourth Amended and Restated Credit Agreement

On June 30, 2017, Virtu Financial and VFH Parent LLC (“VFH”) entered into a fourth amended and restated credit agreement (the “Fourth Amended and Restated Credit Agreement”) for an aggregate $1.15 billion of first lien secured term loans (the “Term Loan Facility”) 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.

For the year ended December 31, 2017, $250.0 million of prepayments were made under the Fourth Amended and Restated Credit Agreement. In connection with the debt refinancing and the debt prepayment, the Company accelerated approximately $10.5 million unamortized financing costs incurred that were scheduled to be amortized over the term of the loan, including original issue discount and underwriting and legal fees, which is included within debt issue cost related to debt refinancing in the consolidated statements of comprehensive income.

The Fourth Amended and Restated Credit Agreement contains certain customary covenant and 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.

Senior Secured Second Lien Notes

On June 16, 2017, the Escrow Issuer and Orchestra Co-Issuer, Inc. (the “Co-Issuer”) completed the offering of $500.0 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.

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.

The Indenture imposes certain limitations on the Company, and contains certain 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 “Acquisition of KCG Holdings, Inc.” for further 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 ($33.1 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 (as described in Note 11 “Financial assets and liabilities”). 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 consolidated statements of comprehensive income. The principal balance was ¥3.5 billion ($31.0 million) as of December 31, 2017 and ¥3.5 billion ($29.9 million) as of December 31, 2016. The Company recorded a gain of $1.1 million and a loss of $3.2 million due to the change in currency rates during the years ended December 31, 2017 and 2016, respectively.

Aggregate future required minimum principal payments based on the terms of the long-term borrowings at December 31, 2017 were as follows:


(in thousands)
2018	$	—
2019		—
2020		31,059
2021 and thereafter		1,400,000
Total principal of long-term borrowings	$	1,431,059