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LUK - FMG development


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C&S are pissed.



Item 8.01.  Other Events.


On August 9, 2010, Leucadia National Corporation (“Leucadia” or the “Company”) was advised that Fortescue Metals Group Ltd (“FMG”) is asserting that its subsidiary, Chichester Metals Pty Ltd (“FMG Chichester”), is entitled to issue additional subordinated notes in an unlimited amount identical to the $100,000,000 principal amount subordinated note of FMG Chichester held by Leucadia (the “Leucadia Subordinated Note”).  FMG further claims that any interest to be paid on additional subordinated notes can dilute, on a pro rata basis, Leucadia’s entitlement to the stated interest of 4% of the revenue, net of government royalties, invoiced from the iron ore produced from FMG’s Cloud Break and Christmas Creek mine areas.


This extraordinary claim comes four years after the issuance to Leucadia of the Leucadia Subordinated Note, during which time FMG has never asserted this purported right to dilute Leucadia’s interest in any of FMG’s public filings or other communications.  The Leucadia Subordinated Note was issued by FMG Chichester in August 2006 under a Note Deed Poll in the form set forth as a schedule to the July 15, 2006 Subscription Agreement among FMG, FMG Chichester and Leucadia, as amended (the “Subscription Agreement”).  Leucadia does not believe that FMG Chichester has the right to issue additional notes which affect Leucadia’s interest or that the interpretation by FMG of the terms of the Leucadia Subordinated Note, as currently claimed by FMG, reflects the agreement between the parties.  Leucadia is outraged that FMG and its chief executive officer, Andrew Forrest, now assert this claim.

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From my initial read, this sounds ridiculous. It's like you lent a guy a hand when times were tough, and now when things are rolling, you change the rules and screw the guy who gave you the bridge. A honest hand shake doesn't work anymore..so sad.


Reminds me of MBIA and the loan they got.


The FMG note has a lot of upside and it's a rich option on FMG. Thanks for posting. I hope the honest guys win in this scenario. Sucks for Luecadia going forward in future dealings with FMG and Forrest.

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