Why exactly is FXCM raising $125 million?

FXCM has $275 million in cash, and just over $100 million in debt. So why is it borrowing more money?

Leading FX broker FXCM, a member of LeapRate’s Approved List, announced yesterday its plans to raise $125 million in 5-year convertible notes. (Up to $144 million, actually, if the Wall Street underwriters choose to exercise the ‘greenshoe’, which usually happens in these types of transactions). The exact ‘pricing’ details of the offering should be made final and publicized later today.

As of the end of Q1 (March 31), FXCM reported cash of about $125 million, and had long term debt of just over $100 million — $80 million in a bank credit facility FXCM expanded soon after its 2012 acquisition of Lucid for $178 million, plus $23 million in notes payable. So why would so liquid a company such as FXCM raise more money?

The answer is, in one word, acquisitions. It goes something like this. FXCM plans to use most of the proceeds of the $125 million note issue to pay down the $80 million bank credit facility. With medium and long term interest rates at or near all-time lows, it makes a lot of sense for FXCM to “term out” its debt, guaranteeing a low interest expense on its debt whether or not interest rates rise over the next five years.

Doing so will once again free up FXCM’s bank facility. If FXCM were to identify an acquisition target or situation and want to move quickly, it will now have all that ‘dry powder’ ready to go. In FXCM’s recent takeover attempt of Gain Capital, in which FXCM offered an all-stock deal, FXCM’s lack of room in its facility tied its hands in being able to up the cash amount of its offer, at least on very short notice. Now, that shouldn’t be a problem as FXCM looks at other potential targets.

And we do expect there to be more deals in FXCM’s future, as the Forex industry continues to mature and consolidate.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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