Knight Capital Group, Inc. (KCG: Quote) said Monday it has reached a $400 million financing deal with a group of investors after recording a huge trading loss last week due to a software glitch that drove the company to the brink of bankruptcy. The company's shares are down 35 percent in the regular trading session.
In a filing with the Securities and Exchange Commission, New Jersey-based Knight Capital said it has entered into a securities purchase agreement with a group of investors, who have agreed to buy a total of $400 million of 2 percent convertible preferred stock of the company. However, the company did not name the investors in the filing.
The preferred stock will be convertible into about 267 million shares of common stock of the company. Knight Capital expects the transaction to be consummated on Monday morning.
A software glitch at Knight Capital saw a disruption to routing in NYSE-listed securities last Wednesday that led to the company incurring a $440 million trading loss.
Knight Capital experienced a technology issue in the installation of trading software at the open of trading on the NYSE last Wednesday that resulted in it sending numerous erroneous orders in NYSE-listed securities into the market.
The system reportedly shot out unintended orders for dozens of stocks to the tune of about $4.5 billion. The software has since been removed from the company's systems.
Knight then traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of about $440 million that severely impacted the company's capital base. Goldman Sachs Group, Inc. (GS: Quote) reportedly agreed to buy the stocks at a discount as a bulk lot.
Knight has since then been actively pursuing strategic and financing alternatives to strengthen its capital base.
The company had reportedly been negotiating over the weekend on a capital infusion deal with a consortium of investors that include private equity firm Blackstone Group LP (BX: Quote), Getco LLC, the automated trading firm backed by General Atlantic LLC, TD Ameritrade Holdings (AMTD: Quote), Stifel Financial Corp. (SF: Quote) and investment banks Stephens Inc. as well as Jefferies Group Inc. (JEF: Quote).
Media reports had indicated that the capital infusion will be in the form of convertible securities that could convert to equity at $1.50 per share and carry a coupon of 2 percent.
Following the completion of the investment deal, the consortium of investors are expected to own about 70 percent of Knight Capital after the conversion of convertible securities into equity, which is expected to take place after 10 business days.
The reports on the financing deal gave a 57 percent boost to Knight Capital's shares on Friday to close at $4.05, but sharply lower than the closing price of $10.33 on Tuesday, the day prior to the trading errors.
In Monday's regular trading, the stock is down $1.42 or 35.06 percent to $2.63.
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by RTT Staff Writer
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