Debt-free KCG! American conglomerate completes $535 million loan 2.5 years early

Few electronic trading companies in history have demonstrated the tenacity of KCG, which has recovered from adversity in less than two years

America’s conglomerates are often extremely astute when it comes to restoring the status quo following an unpredicted spot of misfortune.

In relative terms, one year and eight months is a very short time indeed in which to recover from a $440 million mishap, however KCG (NYSE:KCG) has indeed done just that, by announcing that it has made its final payment on its first lien credit facility.

In August 2012, Knight Capital Group accidentally deployed development software code to a production server, which executed trades in a live environment and resulted in an immediate and devastating disruption in the prices of 148 companies listed in the New York Stock Exchange and resulting in the almost catastrophic losses suffered by Knight Capital.

The company was brought close to bankruptcy, however was provided a lifeline by GETCO which took the company over.

Subsequently, the newly designated post-acquisition KCG incurred a $535 million loan on July 1. 2013 which it has committed itself to several lump-sum capital repayments, the last of which was repaid yesterday, saving the company $66.4 million in interest expense due to the early repayment of the entirety of the capital.

The loan was scheduled to mature on December 5, 2017, therefore KCG’s efforts to repay it early not only demonstrate shrewd business conduct but also the company’s remarkable recovery, resulting in the ability to assign such large cash sums toward capital repayment.

LeapRate reported last week that the company’s ECN, Hotspot FX, is continuing to make a loss, however the loss is reducing substantially and with KCG showing no signs of wishing to offload the Global Execution Services business unit. This being another example of KCG’s potential long-term view and remarkable overall stability.

The final $50 million repayment of the loan was sourced from internally generated excess liquidity. As a result of the repayment, KCG will record a writeoff of $2 million in capitalized debt costs in the second quarter of 2014.

With the full repayment of the first lien term loan, KCG is free of the covenants contained in the loan, including an annual $15 million cap on share repurchases. KCG remains subject to a limitation on share repurchases based in part on operating results under covenants of the Company’s second lien senior secured notes.

Daniel Coleman, Chief Executive Officer of KCG, made a commercial statement yesterday that “We’re pleased to have the ability to aggressively pay off the debt associated with financing the merger. In under a year since the close, we’ve substantially reached the target capital structure and dramatically lowered our future interest expense. Going forward, we have added flexibility in terms of utilizing cash generated from day-to-day activities.”

Onwards and upwards, as they say….

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