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Loans to and Investments In Associated Companies
 3 Months Ended
Feb. 29, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Loans to and Investments in Associated Companies Loans to and Investments in Associated Companies

A summary of Loans to and investments in associated companies accounted for under the equity method of accounting during the three months ended February 29, 2020 and February 28, 2019 is as follows (in thousands):
 
Loans to and investments in associated companies as of beginning of period
 
Income (losses) related to associated companies
 
Income (losses) primarily related to Jefferies Group's associated companies (1)
 
Contributions to (distributions from) associated companies, net
 
Other
 
Loans to and investments in associated companies as of end of period
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
 
 
 
 
 
 
 
 
 
 
Jefferies Finance
$
673,867

 
$
—

 
$
5,119

 
$
4,871

 
$
—

 
$
683,857

Berkadia
268,949

 
—

 
21,894

 
(36,165
)
 
305

 
254,983

FXCM (2)
70,223

 
(1,638
)
 
—

 
—

 
(144
)
 
68,441

Linkem (3)
194,847

 
(13,185
)
 
—

 
(359
)
 
(113
)
 
181,190

Real estate associated companies (4) (5)
255,309

 
(53,014
)
 
—

 
(29,415
)
 
—

 
172,880

Other (3)
189,762

 
(18
)
 
1,746

 
551

 
9,236

 
201,277

Total
$
1,652,957

 
$
(67,855
)
 
$
28,759

 
$
(60,517
)
 
$
9,284

 
$
1,562,628

 
 
 
 
 
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
Jefferies Finance
$
728,560

 
$
—

 
$
(6,999
)
 
$
(71,348
)
 
$
—

 
$
650,213

Berkadia
245,228

 
—

 
22,649

 
(17,323
)
 
172

 
250,726

National Beef (6)
653,630

 
27,105

 
—

 
(25,596
)
 
3

 
655,142

FXCM (2)
75,031

 
(2,716
)
 
—

 
—

 
187

 
72,502

Linkem
165,157

 
(1,621
)
 
—

 
32,578

 
1,030

 
197,144

HomeFed (4)
337,542

 
1,983

 
—

 
—

 
—

 
339,525

Real estate associated companies
87,074

 
2,596

 
—

 
—

 
—

 
89,670

Other
125,110

 
(34
)
 
(4,313
)
 
5,728

 
(387
)
 
126,104

Total
$
2,417,332

 
$
27,313

 
$
11,337

 
$
(75,961
)
 
$
1,005

 
$
2,381,026



(1)
Primarily classified in Other revenues.
(2)
As further described in Note 3, our investment in FXCM includes both our equity method investment in FXCM and our term loan with FXCM. Our equity method investment is included in Loans to and investments in associated companies and our term loan is included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition.
(3)
Loans to and investments in associated companies at February 29, 2020 and November 30, 2019 include loans and debt securities aggregating $75.1 million and $70.2 million, respectively, related to Linkem and Other.
(4)
During the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. From July 1, 2019, HomeFed's equity method investments are included in Real estate associated companies.
(5)
Income (loss) related to Real estate associated companies for the three months ended February 29, 2020, includes a non-cash charge of $55.6 million to fully write-off the value of HomeFed's RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market.
(6)
On November 29, 2019, we sold our remaining equity interest in National Beef.

Income (losses) related to associated companies includes the following (in thousands):
 
For the Three Months Ended
 
February 29, 2020
 
February 28, 2019
National Beef
$
—

 
$
27,105

FXCM
(1,638
)
 
(2,716
)
Linkem
(13,185
)
 
(1,621
)
HomeFed
—

 
1,983

Real estate associated companies
(53,014
)
 
2,596

Other
(18
)
 
(34
)
Total
$
(67,855
)
 
$
27,313


Income (losses) primarily related to Jefferies Group's associated companies (primarily classified in Other revenues) includes the following (in thousands):
 
For the Three Months Ended
 
February 29, 2020
 
February 28, 2019
Jefferies Finance
$
5,119

 
$
(6,999
)
Berkadia
21,894

 
22,649

Other
1,746

 
(4,313
)
Total
$
28,759

 
$
11,337



Jefferies Finance

Through Jefferies Group, we own 50% of Jefferies Finance LLC ("Jefferies Finance"), a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company ("MassMutual"). Jefferies Finance 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 adviser for various loan funds.

At February 29, 2020, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At February 29, 2020, $652.4 million of Jefferies Group's commitment was funded. The investment commitment is scheduled to expire on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party.

Jefferies Finance has executed a Secured Revolving Credit Facility with Jefferies Group 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 Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party. At February 29, 2020, none of Jefferies Group's $250.0 million commitment was funded. Jefferies Group recognized interest income and unfunded commitment fees related to the facility of $1.1 million and $0.3 million during the three months ended February 29, 2020 and February 28, 2019, respectively.

The following summarizes activity related to our other transactions with Jefferies Finance (in millions):
 
For the 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)
Jefferies Group engages in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, Jefferies Group earned fees, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies Group paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized in Selling, general and other expenses in the Consolidated Statements of Operations.
(2)
Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies Group recognized fees, which are included in Investment banking revenues in the Consolidated Statements of Operations. At February 29, 2020 and November 30, 2019, Jefferies Group held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.
(3)
Jefferies Group acted as underwriter in connection with terms loans issued by Jefferies Finance.
(4)
Under a service agreement, Jefferies Group charged Jefferies Finance for services provided.
At February 29, 2020, we had a receivable from Jefferies Finance, included within Other assets in the Consolidated Statement of Financial Condition of $18.3 million and a payable to Jefferies Finance, related to cash deposited with Jefferies Group, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $22.2 million. At November 30, 2019, we had a receivable from Jefferies Finance, included within Other assets in the Consolidated Statement of Financial Condition of $17.2 million and a payable to Jefferies Finance, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $31.3 million.
Jefferies Group enters into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts, Jefferies Group had $0.4 million recorded in Financial instruments owned, at fair value, in the Consolidated Statement of Financial Condition at February 29, 2020 and $4.7 million recorded in Payables, expense accruals and other liabilities and $0.2 million included in Financial instruments sold, not yet purchased, at fair value in the Consolidated Statement 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 formed in 2009 with Berkshire Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% membership interest in Berkadia. We are entitled to receive 45% of the profits. 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.

Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. At February 29, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion.

National Beef

National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. On November 29, 2019, we sold our remaining equity interest in National Beef.
FXCM

We have a 50% voting interest in FXCM, a provider of online foreign exchange trading services. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology and tradename over their respective useful lives (weighted average life of 11 years).

Linkem

We own approximately 42% of the common shares of Linkem, the largest fixed wireless broadband services provider in Italy. In addition, we own convertible preferred stock, which is automatically convertible to common shares in 2022. If all of our convertible preferred stock was converted, it would increase our ownership to approximately 54% of Linkem’s common equity at February 29, 2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $58.1 million at February 29, 2020. These shareholder loans bear interest at 5% per annum and are due June 30, 2024. We account for our equity interest in Linkem on a two month lag.

HomeFed

HomeFed develops and owns residential and mixed-use real estate properties. Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed’s outstanding common shares; however, we had contractually agreed to limit our voting rights such that we would not be able to vote more than 45% of HomeFed’s total voting securities voting on any matter, assuming all HomeFed shares not owned by us were voted. Since we did not control HomeFed, our investment in HomeFed was accounted for under the equity method as an investment in an associated company. We accounted for our equity interest in HomeFed on a two month lag.
On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis.
Real Estate Associated Companies

Real estate equity method investments primarily consist of HomeFed's interests in Brooklyn Renaissance Plaza and Hotel and RedSky JZ Fulton Mall, and 54 Madison. These equity interests are accounted for on a two month lag.

Brooklyn Renaissance Plaza is comprised of a hotel operated by Marriott, an office building complex and a parking garage located in Brooklyn, New York. HomeFed owns a 25.8% equity interest in the hotel and a 61.25% equity interest in the office building and garage. Although HomeFed has a majority interest in the office building and garage, it does not have control, but only has the ability to exercise significant influence on this investment. As such, HomeFed accounts for the office building and garage under the equity method of accounting. We are amortizing our basis difference between the estimated fair value and the underlying book value of Brooklyn Renaissance Plaza over the respective useful lives (weighted average life of 38 years).

HomeFed has a 49% membership interest in a joint venture partnership with RedSky JZ Fulton Holdings, LLC, formed for the acquisition and possible redevelopment of a development site located on the Fulton Mall corridor in Downtown Brooklyn, New York. The property consists of 14 separate tax lots, divided into two development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the three months ended February 29, 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed's equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during the three months ended February 29, 2020, which represented all of its carrying value in the joint venture.

We own approximately 48.1% of 54 Madison, a fund that seeks long-term capital appreciation through investment in real estate development and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Based on total committed capital of the 54 Madison fund, all projects of this fund have already been identified and launched. We have two of the four seats on the 54 Madison investment committee and have significant influence over the fund, including a number of protective rights such as the right to block material investments, divestitures and changes outside of agreed upon parameters.
Other

The following table provides required summarized data for certain equity method investments. The table includes Jefferies Finance, Berkadia and Fiesta Restaurant Group, Inc. for the three months ended February 29, 2020 and February 28, 2019, and National Beef for the three months ended February 28, 2019 (in thousands):
 
For the Three Months Ended
 
February 29,
2020
 
February 28,
2019
Revenues
$
462,269

 
$
2,250,403

Income from continuing operations before extraordinary items
$
48,307

 
$
133,579

Net income
$
48,307

 
$
133,579