Wall Street trading firm Knight Capital Group, Inc., which was hit with huge losses due to a software glitch last week, has a deal to shore up its balance sheet.
The firm announced a US$400 million equity financing with a number of firms including Jefferies Group, Inc., which structured the investment, along with TD Ameritrade Holding Corp., Blackstone, GETCO LLC, Stephens, and Stifel Financial Corp. Knight issued 2% preferred shares that may be converted into common stock at US$1.50 per share.
The firm said that the capital infusion was undertaken in response to the trading loss it suffered on August 1 (previously pegged at US$440 million), “which significantly depleted Knight’s capital base and in turn precipitated a loss of customer and counterparty confidence and liquidity crisis that, if not immediately addressed, would have threatened Knight’s ability to continue to operate.”
Without the capital infusion, there was a risk that daily funding sources necessary for Knight’s routine operations could cease to be available, it noted. It said it believes that this transaction “will provide the liquidity and capital necessary to restore confidence to customers and the market”, enabling it to continue as an active participant in the capital markets.
Normally, an issue of this size, representing, approximately 73% of the outstanding common stock of Knight, would require shareholder approval. But, in the circumstances, with its financial viability on the line, it sought, and was granted, exceptional relief by the New York Stock Exchange to proceed with the deal immediately.
“Knight’s financial position and capital base have been restored to a level that more than offsets the loss incurred last week. We thank our clients, employees and partners for their steadfastness during a brief yet difficult period and we are getting back to business as usual,” said Tom Joyce, chairman and CEO of Knight Capital.
The firm has also committed to expand its board of directors by adding three new members. And, it noted that it continues to review the technical glitch that led to the trading loss last week.