Refco Inc. said that an investment group has reached an agreement to acquire Refco's key regulated futures-trading unit as the brokerage firm filed for bankruptcy-court protection.
The investment group, led by private equity fund J.C. Flowers & Co. LLC, also reportedly includes Texas Pacific Group, another large private equity fund.
The terms of the deal give the brokerage the choice of an all-cash payment worth about $770 million, or the option of retaining a 20 percent interest in the business and also receiving a cash payment. The deal must still be finalized, and because Refco has filed for protection from creditors, a bankruptcy court judge will have to approve the terms. The Chapter 11 filing is the fourth-largest in history.
The regulated futures business that the J.C. Flowers-led group wants to acquire is a key part of Refco and allows hedge funds and companies to trade contracts on commodities such as cattle and metals, as well as financial products like bonds and currencies.
Last week, Refco announced that former chief executive Phillip Bennett had transferred about $430 million in debts to an entity he controlled in an apparent attempt to bolster financial results. The company said that its financial statements since 2002 shouldn't be relied upon, and that the debt transactions had been hidden at the end of quarterly and annual reporting periods by transfers to a third-party customer -- those debts are most likely uncollectable and stretch back to 1998.
The Securities and Exchange Commission has reportedly launched an inquiry into Refco, and lawsuits have been filed against Refco's auditor, Grant Thornton LLC.
