MF Global Holdings Ltd. plans to sell bonds with an interest rate that will rise if Chairman and Chief Executive Officer Jon Corzine receives a federal appointment from the U.S. president.
The futures broker is selling $300 million of five-year senior unsecured notes to repay a bank line and for general corporate purposes, according to a person familiar with the offering, who declined to be identified because terms aren’t set. The coupon will increase 1 percentage point if Corzine is appointed and confirmed by the U.S. Senate before July 2013, MF Global said today in a regulatory filing.
Corzine, the former governor of New Jersey, helped run Goldman Sachs Group Inc. from 1994 to 1999 and served in the Senate from 2001 to 2006. Since joining MF Global last year, he’s taken more risk with the firm’s money to remake the broker into a mid-size investment bank by 2015 and sought to change its capital structure to reduce borrowing costs.
“He’s such a big part of the turnaround story you’d probably be a bit worried about him leaving,” Christopher Allen, an exchange and brokerage analyst with Evercore Partners Inc. in New York, said in a telephone interview.
Allen said Corzine has been the subject of speculation for Washington postings, including Treasury Secretary or an economic adviser to the White House.
His $1.5 million retention bonus would be paid on a pro rata basis if he leaves to work for any “U.S. federal, state or local government” before March 31, 2014, according to Corzine’s employment contract.
Diana DeSocio, an MF Global spokeswoman, said she was unable to comment because the company is in the offering period for the bond.
Corzine has presided over a 13 percent rise in MF Global’s share price in the past year through yesterday. It was named a primary dealer by the Federal Reserve Bank of New York and has hired more than 80 salespeople and traders this year.
Even with the additions, Corzine has cut costs by reducing the firm’s workforce by 5.5 percent and delivered unadjusted profit last quarter. Prior to that period, the firm was unprofitable on a generally accepted accounting principles basis in eight of the previous nine quarters.
MF Global fell 15 cents, or 2 percent, to $7.23 at 12:36 p.m. in New York Stock Exchange composite trading.
Net revenue per employee has risen to $110,000 for the three months ended in June, compared with $93,000 a year earlier, the company said last week. At the same time, Corzine brought the ratio of employee compensation to net revenue down to 54 percent from 63 percent in the June quarter of 2009.
Net income climbed to $7.67 million, or 5 cents a share, in the period ended June 30, compared with $783,000, or 1 cent, a year ago, the New York-based company said July 28.
Last week, the New York-based firm said it planned to buy back $109.1 million of 9 percent outstanding convertible notes with the proceeds from a sale of $325 million of 3.375 percent securities maturing in August 2018.
Jefferies & Co. is managing the bond sale, according to the filing, which didn’t specify the size of the offering.
Moody’s Investors Service ranks MF Global Baa2, the second-lowest investment grade, while Standard & Poor’s rates it BBB-, one step lower. The interest rate will also rise if Moody’s or S&P cuts the company’s debt grade to junk, the regulatory filing shows.
The interest rate increase under the so-called “key man” provision will reverse if MF Global is upgraded to at least A3 by Moody’s or an equivalent A- by S&P after a departure by Corzine, according to the regulatory filing.
“There aren’t that many former senators that are running public companies that are in the middle of a turnaround,” Niamh Alexander, a New York-based analyst at Keefe Bruyette & Woods Inc., said in a telephone interview. “This is probably a concern that a few key investors had and this is how they addressed it.”