In a motion filed with the Bankruptcy Court today, Refco Inc. (OTC Bulletin Board: RFXCQ) said it has proposed to enter an agreement with privately held GAIN Capital Group (GAIN), under which GAIN would acquire the Refco FXA (RFXA) retail customer account information and related assets.
The proposed agreement provides RFXA customers with the potential to recover up to 100 percent of their RFXA account balances. The proposed agreement is reflected in a non-binding term sheet that is subject to documentation and Bankruptcy Court approval, among other conditions.
RFXA currently has approximately 15,000 retail foreign exchange (forex) trading accounts. Upon the closing date of the proposed transaction, approximately 40 percent of RFXA's customers could receive a full recovery of their account balances, if they open an account with GAIN and execute at least one trade. Customers with larger deposits can also receive up to 100 percent recovery provided they meet certain trading thresholds, as outlined in the term sheet.
"We chose to work with GAIN for a number of reasons. GAIN is a leader in the industry and expressed early interest in the RFXA clients. They also have both the financial and operational resources necessary to help achieve a smooth transition for customers and to offer continued support for their ongoing trading needs. Just as important, GAIN and FOREX.com have an exemplary record with the National Futures Association (NFA) and, unlike RFXA, are regulated as a futures commission merchant. Their reputation in the industry speaks for itself," said Refco's Chief Restructuring Officer David Pauker.
"The proposed agreement benefits creditors by reducing a portion of the pre-petition customer claims against RFXA," continued Mr. Pauker. These claims, which include customer deposits, total over $100 million.
"At the same time, the proposed transaction with GAIN represents a much improved recovery for RFXA customers," Mr. Pauker said.
"We are pleased to be able to offer Refco FX clients the ability to recover up to 100 percent of their RFXA account balance and at the same time continue to trade forex with a regulated firm," said GAIN's Chief Executive Officer Mark Galant. GAIN Capital Group and FOREX.com are registered with the National Futures Association (NFA) as a Futures Commission Merchant (NFA ID #0339826).
"In addition, if a RFXA customer chooses to opt into the program but does not recoup the full amount of their RFXA account balance, they still retain all their rights to the balance of their claim as a general unsecured creditor of Refco," Mr. Galant said.
Under the terms of the proposed agreement, GAIN will offer RFXA clients the option to open an account at FOREX.com, GAIN's retail division. For RFXA clients who opt to do so, GAIN has agreed to immediately fund an amount equal to the lesser of the customer's aggregate RFXA account balance or $150 per account when the client activates a new account. Clients with balances of $40 or less would be able to withdraw their funds immediately upon opening their account at FOREX.com. For customers with larger deposits, GAIN has agreed to reimburse customers up to their full RFXA account balance, payable in 25 percent increments every six months, provided they meet certain trading thresholds.
Mr. Pauker said that, at present, it is not expected that RFXA will have sufficient assets to pay its creditors in full. In addition to customer and trade liabilities, which exceed $140 million, RFXA is a guarantor of Refco's secured bank debt and unsecured bonds, which total in excess of $1 billion. RFXA has approximately $54 million of cash and securities, much of which is claimed as collateral by Refco's secured lenders. RFXA is also owed money by some Refco affiliates, but the timing and amount of those recoveries is uncertain; Refco's lenders also assert claims to those receivables.