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JEF Jefferies

Filed: 8 Apr 21, 4:21pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-14947
JEFFERIES GROUP LLC
(Exact name of registrant as specified in its charter)
Delaware95-4719745
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
520 Madison Avenue, New York,New York10022
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (212) 284-2550
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
4.850% Senior Notes Due 2027JEF/27ANew York Stock Exchange
5.125% Senior Notes Due 2023JEF/23New York Stock Exchange
The Registrant is a wholly-owned subsidiary of Jefferies Financial Group Inc. and meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with a reduced disclosure format as permitted by Instruction H(2).


JEFFERIES GROUP LLC
INDEX TO QUARTERLY REPORT ON FORM 10-Q
February 28, 2021

1

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(In thousands)
February 28, 2021November 30, 2020
ASSETS
Cash and cash equivalents (includes $18 and $468 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)$6,707,482 $7,111,929 
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations615,115 604,321 
Financial instruments owned, at fair value (includes securities pledged of $12,150,880 and $13,065,585 at February 28, 2021 and November 30, 2020, respectively; and $12,630 and $5,238 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)18,570,876 17,686,052 
Loans to and investments in related parties1,017,352 1,000,730 
Securities borrowed7,150,657 6,934,762 
Securities purchased under agreements to resell6,680,284 5,096,769 
Securities received as collateral, at fair value7,517 
Receivables:
Brokers, dealers and clearing organizations ($31,224 and $12,919 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)4,749,675 4,158,823 
Customers1,863,453 1,286,925 
Fees, interest and other490,915 397,630 
Premises and equipment849,417 847,127 
Goodwill1,650,642 1,646,933 
Other assets ($152 and $131 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)1,040,543 972,479 
Total assets$51,386,411 $47,751,997 
LIABILITIES AND EQUITY
Short-term borrowings (includes $0 and $5,067 at fair value at February 28, 2021 and November 30, 2020, respectively)$882,941 $764,715 
Financial instruments sold, not yet purchased, at fair value ($9,445 and $2,466 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)12,361,542 10,017,522 
Collateralized financings:
Securities loaned2,519,077 1,810,748 
Securities sold under agreements to repurchase7,207,636 8,316,269 
Other secured financings (includes $2,168 and $1,543 at fair value at February 28, 2021 and November 30, 2020, respectively; and $3,802,057 and $2,769,674 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)3,804,225 2,771,217 
Obligation to return securities received as collateral, at fair value7,517 
Payables:
Brokers, dealers and clearing organizations4,098,406 3,325,753 
Customers4,091,069 4,251,556 
Lease liabilities558,429 561,249 
Accrued expenses and other liabilities (includes $1,335 and $1,202 at February 28, 2021 and November 30, 2020, respectively, related to consolidated VIEs)2,385,747 2,663,639 
Long-term debt (includes $1,784,157 and $1,712,245 at fair value at February 28, 2021 and November 30, 2020, respectively)6,921,708 6,895,680 
Total liabilities44,830,780 41,385,865 
EQUITY
Member’s paid-in capital6,819,060 6,569,328 
Accumulated other comprehensive income (loss):
Currency translation and other adjustments(131,006)(141,843)
Changes in instrument specific credit risk(140,587)(71,151)
Additional minimum pension liability(8,002)(8,104)
Available-for-sale securities453 513 
Total accumulated other comprehensive loss(279,142)(220,585)
Total Jefferies Group LLC member’s equity6,539,918 6,348,743 
Noncontrolling interests15,713 17,389 
Total equity6,555,631 6,366,132 
Total liabilities and equity$51,386,411 $47,751,997 
See accompanying notes to consolidated financial statements.
2

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands)
Three Months Ended
February 28, 2021February 29, 2020
Revenues:
Commissions and other fees$236,938 $179,535 
Principal transactions791,219 371,902 
Investment banking1,003,662 592,002 
Asset management fees and revenues37,383 11,720 
Interest219,021 294,668 
Other60,588 29,729 
Total revenues2,348,811 1,479,556 
Interest expense219,445 308,860 
Net revenues2,129,366 1,170,696 
Non-interest expenses:
Compensation and benefits1,119,894 635,230 
Non-compensation expenses:
Floor brokerage and clearing fees76,580 60,580 
Technology and communications104,341 89,184 
Occupancy and equipment rental27,990 27,503 
Business development17,981 29,957 
Professional services44,288 44,665 
Underwriting costs36,136 17,529 
Other30,986 30,670 
Total non-compensation expenses338,302 300,088 
Total non-interest expenses1,458,196 935,318 
Earnings before income taxes671,170 235,378 
Income tax expense177,305 64,013 
Net earnings493,865 171,365 
Net loss attributable to noncontrolling interests(203)(2,024)
Net earnings attributable to Jefferies Group LLC$494,068 $173,389 
See accompanying notes to consolidated financial statements.
3

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
Three Months Ended
February 28, 2021February 29, 2020
Net earnings$493,865 $171,365 
Other comprehensive income (loss), net of tax:
Currency translation adjustments and other (1)10,939 (8,996)
Changes in instrument specific credit risk (2)(69,436)22,996 
Unrealized gain (loss) on available-for-sale securities (3)(60)237 
Total other comprehensive income (loss), net of tax (4)(58,557)14,237 
Comprehensive income435,308 185,602 
Net loss attributable to noncontrolling interests(203)(2,024)
Comprehensive income attributable to Jefferies Group LLC$435,511 $187,626 

(1)The amounts include income tax benefits (expenses) of approximately $(3.2) million and $3.1 million during the three months ended February 28, 2021 and February 29, 2020, respectively.
(2)The amounts include income tax benefits (expenses) of approximately $22.3 million and $(7.9) million during the three months ended February 28, 2021 and February 29, 2020, respectively. The amount during the three months ended February 28, 2021 also includes a net loss of $0.2 million, net of an income tax benefit of $0.1 million, and the amount during the three months ended February 29, 2020 also includes a net loss of $0.3 million, net of an income tax benefit of $0.1 million, related to changes in instrument specific risk, which were reclassified to Principal transactions revenues in our Consolidated Statements of Earnings.
(3)The amount includes income tax expense of $0.1 million during the three months ended February 29, 2020.
(4)None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.
See accompanying notes to consolidated financial statements.
4

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(In thousands)
Three Months Ended
February 28, 2021February 29, 2020
Member’s paid-in capital:
Balance, beginning of period$6,569,328 $6,329,677 
Cumulative effect of change in accounting principle for current expected credit losses, net of tax2,698 
Net earnings attributable to Jefferies Group LLC494,068 173,389 
Contribution from Jefferies Financial Group Inc.153,557 
Distributions to Jefferies Financial Group Inc.(400,591)
Balance, end of period$6,819,060 $6,503,066 
Accumulated other comprehensive income (loss), net of tax:
Balance, beginning of period$(220,585)$(204,205)
Currency translation and other adjustments10,939 (8,996)
Changes in instrument specific credit risk(69,436)22,996 
Unrealized gain (loss) on available-for-sale securities(60)237 
Balance, end of period$(279,142)$(189,968)
Total Jefferies Group LLC member’s equity$6,539,918 $6,313,098 
Noncontrolling interests:
Balance, beginning of period$17,389 $4,275 
Net loss attributable to noncontrolling interests(203)(2,024)
Contributions17,100 
Distributions(1,473)
Balance, end of period$15,713 $19,351 
Total equity$6,555,631 $6,332,449 

See accompanying notes to consolidated financial statements.
5

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended 
February 28, 2021February 29, 2020
Cash flows from operating activities:
Net earnings$493,865 $171,365 
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization20,159 14,557 
Income on loans to and investments in related parties(57,541)(26,922)
Distributions received on investments in related parties35,949 
Other adjustments(100,094)80,132 
Net change in assets and liabilities:
Securities deposited with clearing and depository organizations(84,307)(296,514)
Receivables:
Brokers, dealers and clearing organizations(585,369)(1,368,785)
Customers(576,526)(48,064)
Fees, interest and other(86,402)(18,295)
Securities borrowed(211,177)910,494 
Financial instruments owned(869,326)(1,555,782)
Securities purchased under agreements to resell(1,576,329)(614,635)
Other assets(48,342)(246,208)
Payables:
Brokers, dealers and clearing organizations767,964 1,635,066 
Customers(160,488)(51,154)
Securities loaned704,075 371,286 
Financial instruments sold, not yet purchased2,330,574 (638,098)
Securities sold under agreements to repurchase(1,114,857)909,654 
Lease liabilities(11,297)(16,331)
Accrued expenses and other liabilities(382,976)(140,411)
Net cash used in operating activities(1,548,394)(892,696)
Cash flows from investing activities:
Contributions to loans to and investments in related parties(912,340)(855,609)
Capital distributions from investments and repayments of loans from related parties952,882 850,739 
Net payments on premises and equipment(16,897)(32,071)
Transfer of net assets from Jefferies Financial Group Inc.(2,173)
Net cash provided by (used in) investing activities21,472 (36,941)
Continued on next page.
6

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (UNAUDITED)
(In thousands)
Three Months Ended
February 28, 2021February 29, 2020
Cash flows from financing activities:
Proceeds from short-term borrowings319,000 472,000 
Payments on short-term borrowings(196,090)(362,000)
Proceeds from issuance of long-term debt, net of issuance costs58,983 170,770 
Repayment of long-term debt(10,089)(35,629)
Contributions from Jefferies Financial Group Inc.153,557 
Distributions to Jefferies Financial Group Inc.(307,114)(12,580)
Net proceeds from (payments on) other secured financings1,033,008 (300,867)
Net change in bank overdrafts(4,706)(34,518)
Proceeds from contributions of noncontrolling interests17,100 
Payments on distributions to noncontrolling interests(1,473)
Net cash provided by (used in) financing activities1,045,076 (85,724)
Effect of exchange rate changes on cash, cash equivalents and restricted cash3,886 (2,927)
Net decrease in cash, cash equivalents and restricted cash(477,960)(1,018,288)
Cash, cash equivalents and restricted cash at beginning of period7,682,013 6,329,712 
Cash, cash equivalents and restricted cash at end of period$7,204,053 $5,311,424 
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest$236,116 $357,925 
Income taxes, net29,953 3,524 
The following presents our cash, cash equivalents and restricted cash by category in our Consolidated Statements of Financial Condition (in thousands):
February 28, 2021November 30, 2020
Cash and cash equivalents$6,707,482 $7,111,929 
Cash and securities segregated and on deposit for regulatory purposes with clearing and depository organizations496,571 570,084 
Total cash, cash equivalents and restricted cash$7,204,053 $7,682,013 
See accompanying notes to consolidated financial statements.
7

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Index

8

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 1. Organization and Basis of Presentation
Organization
Jefferies Group LLC is the largest independent U.S.-headquartered global full service, integrated investment banking and securities firm. The accompanying Consolidated Financial Statements represent the accounts of Jefferies Group LLC and all our subsidiaries (together “we” or “us”). The subsidiaries of Jefferies Group LLC include Jefferies LLC, Jefferies International Limited, Jefferies Hong Kong Limited, Jefferies Financial Services, Inc., Jefferies Funding LLC, Jefferies Leveraged Credit Products, LLC and all other entities in which we have a controlling financial interest or are the primary beneficiary.
Jefferies Group LLC is a direct subsidiary of publicly traded Jefferies Financial Group Inc. (“Jefferies”). Jefferies does not guarantee any of our outstanding debt securities. Jefferies Group LLC is a Securities and Exchange Commission (“SEC”) reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is the Chief Executive Officer of Jefferies, as well as a Director of Jefferies. Brian P. Friedman, our Chairman of the Executive Committee, is Jefferies’ President and a Director of Jefferies.
We operate in 2 reportable business segments: (1) Investment Banking and Capital Markets and (2) Asset Management. For further information on our reportable business segments, refer to Note 18, Segment Reporting.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended November 30, 2020. Certain footnote disclosures included in our Annual Report on Form 10-K for the year ended November 30, 2020 have been condensed or omitted from the consolidated financial statements as they are not required for interim reporting under U.S. GAAP. The Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results presented in our Consolidated Financial Statements for interim periods are not necessarily indicative of the results for the entire year.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, goodwill and intangible assets, the ability to realize certain deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
Consolidation
Our policy is to consolidate all entities that we control by ownership of a majority of the outstanding voting stock. In addition, we consolidate entities that meet the definition of a variable interest entity (“VIE”) for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than the holding of equity interest is presented as Noncontrolling interests in our Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests is presented as Net earnings (loss) attributable to noncontrolling interests in our Consolidated Statements of Earnings.
In situations in which we have significant influence, but not control, of an entity that does not qualify as a VIE, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under U.S. GAAP, with our portion of net earnings or gains and losses recorded in Other revenues or Principal transactions revenues, respectively. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. We act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or “kick-out” rights.
Intercompany accounts and transactions are eliminated in consolidation.

9

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 2. Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020.
During the three months ended February 28, 2021, there were no significant changes made to the Company’s significant accounting policies.

Note 3. Accounting Developments
Adopted Accounting Standards
Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The objective of the guidance is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Consolidation. In October 2018, the FASB issued ASU No. 2018-17, Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Internal-Use Software. In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The guidance amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. We adopted the guidance in the first quarter of fiscal 2021 and elected to apply the guidance prospectively to implementation costs incurred after the adoption date. The adoption did not have an impact on our consolidated financial statements on the adoption date.
Defined Benefit Plans. In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The objective of the guidance is to improve the effectiveness of disclosure requirements on defined benefit pension plans and other postretirement plans. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Goodwill. In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies goodwill impairment testing. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
10

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Financial Instruments—Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance provides for estimating credit losses on financial assets measured at amortized cost by introducing an approach based on expected losses over the financial asset's entire life, recorded at inception or purchase. We adopted the new credit loss guidance on December 1, 2020 and applied a modified retrospective approach through a cumulative-effect adjustment to retained earnings upon adoption. At transition on December 1, 2020, the new accounting guidance's adoption resulted in a decrease in the provision for credit losses of $3.6 million with a corresponding increase in retained earnings of $2.7 million, net of tax. The decrease was attributable to applying a revised provisioning methodology based on historical loss experience for our investment banking fee receivables. The impact upon adoption for our secured financing receivables (reverse repurchases agreements, securities borrowing arrangements, and margin loans) was immaterial because of the contractual collateral maintenance provisions that require that the counterparty continually adjust the amount of collateralization securing the credit exposure on these contracts. For the remaining financial instruments within the guidance's scope, the expected credit losses were also determined to be immaterial considering the counterparty's credit quality, an insignificant history of credit losses, or the short-term nature of the credit exposures. The updated accounting policy for estimating credit losses on financial assets measured at amortized cost as a result of this adoption is outlined below.
Credit Losses on Financial Assets Measured at Amortized Cost
Financial assets measured at amortized cost are presented at the net amount expected to be collected and the measurement of credit losses and any expected increases or decreases in expected credit losses are recognized in earnings. The estimate of expected credit losses involves judgment and based on an assessment over the life of the financial instrument taking into consideration forecasts of expected future economic conditions. In evaluating secured financing receivables (reverse repurchases agreements, securities borrowing arrangements, and margin loans), the underlying collateral maintenance provisions are taken into consideration. The underlying contractual collateral maintenance for significantly all of our secured financing receivables requires that the counterparty continually adjust the collateralization amount, securing the credit exposure on these contracts. Collateralization levels for our secured financing receivables are initially established based upon the counterparty, the type of acceptable collateral that is monitored daily and adjusted to mitigate the potential of any credit losses. Credit losses are not recognized for secured financing receivables where the underlying collateral's fair value is equal to or exceeds the asset's amortized cost basis. In cases where the collateral's fair value does not equal or exceed the amortized cost basis, the allowance for credit losses, if any, is limited to the difference between the fair value of the collateral at the reporting date and the amortized cost basis of the financial assets.
Our receivables from brokers, dealers, and clearing organizations include deposits of cash with exchange clearing organizations to meet margin requirements, amounts due from clearing organizations for daily variation settlements, securities failed-to-deliver or receive, receivables and payables for fees and commissions, and receivables arising from unsettled securities or loans transactions. These receivables generally do not give rise to material credit risk and have a remote probability of default either because of their short-term nature or due to the credit protection framework inherent in the design and operations of brokers, dealers and clearing organizations. As such, generally, no allowance for credit losses is held against these receivables.
For all other financial assets measured at amortized cost, we estimate expected credit losses over the financial assets' life as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts.
11

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 4. Fair Value Disclosures
The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value (“NAV”) of $1,017.8 million and $956.0 million at February 28, 2021 and November 30, 2020, respectively, by level within the fair value hierarchy (in thousands):
February 28, 2021
Level 1Level 2Level 3Counterparty and
Cash Collateral
Netting (1)
Total
Assets:
Financial instruments owned:
Corporate equity securities$2,687,871 $58,056 $83,278 $— $2,829,205 
Corporate debt securities3,451,794 6,811 — 3,458,605 
Collateralized debt obligations and collateralized loan obligations91,654 25,894 — 117,548 
U.S. government and federal agency securities2,485,813 73,550 — 2,559,363 
Municipal securities292,604 — 292,604 
Sovereign obligations1,668,975 799,239 — 2,468,214 
Residential mortgage-backed securities1,880,823 21,692 — 1,902,515 
Commercial mortgage-backed securities37,013 2,671 — 39,684 
Other asset-backed securities63,956 60,594 — 124,550 
Loans and other receivables3,099,917 79,055 — 3,178,972 
Derivatives3,346 3,091,787 39,397 (2,604,607)529,923 
Investments at fair value6,399 45,472 — 51,871 
Total financial instruments owned, excluding Investments at fair value based on NAV$6,846,005 $12,946,792 $364,864 $(2,604,607)$17,553,054 
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities$2,124,994 $1,075 $4,443 $— $2,130,512 
Corporate debt securities1,824,458 1,571 — 1,826,029 
U.S. government and federal agency securities2,618,198 — 2,618,198 
Sovereign obligations1,343,920 1,016,688 — 2,360,608 
Commercial mortgage-backed securities35 — 35 
Loans2,326,306 14,916 — 2,341,222 
Derivatives2,173 3,734,965 344,903 (2,997,103)1,084,938 
Total financial instruments sold, not yet purchased$6,089,285 $8,903,492 $365,868 $(2,997,103)$12,361,542 
Other secured financings$$$2,168 $— $2,168 
Long-term debt$$1,061,042 $723,115 $— $1,784,157 
(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
12

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
November 30, 2020
Level 1Level 2Level 3Counterparty and
Cash Collateral
Netting (1)
Total
Assets:
Financial instruments owned:
Corporate equity securities$2,331,440 $58,159 $75,797 $— $2,465,396 
Corporate debt securities2,954,201 23,146 — 2,977,347 
Collateralized debt obligations and collateralized loan obligations64,155 10,513 — 74,668 
U.S. government and federal agency securities2,840,025 91,653 — 2,931,678 
Municipal securities453,881 — 453,881 
Sovereign obligations1,962,346 591,342 — 2,553,688 
Residential mortgage-backed securities1,100,849 21,826 — 1,122,675 
Commercial mortgage-backed securities736,291 2,003 — 738,294 
Other asset-backed securities103,611 79,995 — 183,606 
Loans and other receivables2,610,746 77,042 — 2,687,788 
Derivatives1,523 2,000,752 21,678 (1,556,136)467,817 
Investments at fair value6,122 67,108 — 73,230 
Total financial instruments owned, excluding Investments at fair value based on NAV$7,135,334 $10,771,762 $379,108 $(1,556,136)$16,730,068 
Securities received as collateral$7,517 $$$— $7,517 
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities$2,046,441 $9,046 $4,434 $— $2,059,921 
Corporate debt securities1,237,631 141 — 1,237,772 
U.S. government and federal agency securities2,609,660 — 2,609,660 
Sovereign obligations1,050,771 624,740 — 1,675,511 
Residential mortgage-backed securities477 — 477 
Commercial mortgage-backed securities35 — 35 
Loans1,776,446 16,635 — 1,793,081 
Derivatives551 2,391,478 47,695 (1,798,659)641,065 
Total financial instruments sold, not yet purchased$5,707,423 $6,039,818 $68,940 $(1,798,659)$10,017,522 
Short-term borrowings$$5,067 $$— $5,067 
Other secured financings$$$1,543 $— $1,543 
Obligation to return securities received as collateral$7,517 $$$— $7,517 
Long-term debt$$1,036,217 $676,028 $— $1,712,245 
(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:
Corporate Equity Securities
Exchange-Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.
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(Unaudited)
Non-Exchange-Traded Equity Securities: Non-exchange-traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization (“EBITDA”), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).
Equity Warrants: Non-exchange-traded equity warrants are measured primarily from observed prices on recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and can be measured using third-party valuation services or the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.
Corporate Debt Securities
Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds.
High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.
Collateralized Debt Obligations and Collateralized Loan Obligations
Collateralized debt obligations (“CDOs”) and collateralized loan obligations (“CLOs”) are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third-party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria, including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates and loss severity.
U.S. Government and Federal Agency Securities
U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices obtained from external pricing services and categorized within Level 1 of the fair value hierarchy.
U.S. Agency Debt Securities: Callable and non-callable U.S. agency debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.
Municipal Securities
Municipal securities are measured based on quoted prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size and are generally categorized within Level 2 of the fair value hierarchy.
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Sovereign Obligations
Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy.
Residential Mortgage-Backed Securities
Agency Residential Mortgage-Backed Securities (“RMBS”): Agency RMBS include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only (including inverse interest-only) securities. Agency RMBS are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.
Non-Agency RMBS: The fair value of non-agency RMBS is determined primarily using pricing data from external pricing services, where available, and discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.
Commercial Mortgage-Backed Securities
Agency Commercial Mortgage-Backed Securities (“CMBS”): Government National Mortgage Association (“GNMA”) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.
Non-Agency CMBS: Non-agency CMBS are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-Agency CMBS are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.
Other Asset-Backed Securities
Other asset-backed securities (“ABS”) include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.
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Loans and Other Receivables
Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, for example, derived using market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.
Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.
Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.
Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.
Escrow and Claim Receivables: Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.
Derivatives
Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.
Over-the-Counter (“OTC”) Derivative Contracts: OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.
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OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporates constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.
Investments at Fair Value
Investments at fair value includes investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy.
The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands):
February 28, 2021
Fair Value (1)Unfunded
Commitments
Equity Long/Short Hedge Funds (2)$345,570 $
Equity Funds (3)23,856 11,043 
Commodity Funds (4)19,217 
Multi-asset Funds (5)580,269 
Other Funds (6)48,910 21,750 
Total$1,017,822 $32,793 
November 30, 2020
Fair Value (1)Unfunded
Commitments
Equity Long/Short Hedge Funds (2)$328,096 $
Equity Funds (3)23,821 11,242 
Commodity Funds (4)17,747 
Multi-asset Funds (5)561,236 
Other Funds (6)25,084 5,000 
Total$955,984 $16,242 
(1)Where fair value is calculated based on NAV, fair value has been derived from each of the funds’ capital statements.
(2)This category includes investments in hedge funds that invest, long and short, primarily in both public and private equity securities in domestic and international markets. At both February 28, 2021 and November 30, 2020, approximately 94% of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption before December 31, 2021. At both February 28, 2021 and November 30, 2020, approximately 6% of the fair value of investments in this category are redeemable quarterly with 60 days prior written notice.
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(3)The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed; instead, distributions are received through the liquidation of the underlying assets of the funds which are primarily expected to be liquidated in approximately one to eight years.
(4)This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.
(5)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At both February 28, 2021 and November 30, 2020, investments representing approximately 57% of the fair value of investments in this category are redeemable monthly with 60 days prior written notice.
(6)This category primarily includes investments in a fund that invests in short-term trade receivables and payables that are expected to generally be outstanding between 90 to 120 days and short-term credit instruments. These investments are redeemable quarterly with 90 days prior written notice.
Other Secured Financings
Other secured financings that are accounted for at fair value are classified within Level 3 of the fair value hierarchy. Fair value is based on estimates of future cash flows incorporating assumptions regarding recovery rates.
Securities Received as Collateral / Obligations to Return Securities Received as Collateral
In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy.
Short-term Borrowings / Long-term Debt
Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, equity-linked notes, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate our own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy where market trades have been observed during the period or model pricing is available, otherwise the notes are categorized within Level 3.
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Level 3 Rollforwards
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 28, 2021 (in thousands):

Three Months Ended February 28, 2021
Balance at November 30, 2020Total gains/losses (realized and unrealized) (1)PurchasesSalesSettlementsIssuancesNet transfers into/
(out of) Level 3
Balance at February 28, 2021
For instruments still held at February 28, 2021 changes in
unrealized gains/(losses) included in:
Earnings (1)Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities$75,797 $1,309 $4,805 $(4,647)$$$6,014 $83,278 $135 $
Corporate debt securities23,146 266 130 (6)(16,725)6,811 297 
CDOs and CLOs10,513 3,840 11,427 (8,007)(5,652)13,773 25,894 3,368 
RMBS21,826 1,327 791 (627)(514)(1,111)21,692 1,347 
CMBS2,003 (29)1,105 (393)(15)2,671 97 
Other ABS79,995 2,361 14,604 (20,909)(8,449)(7,008)60,594 1,721 
Loans and other receivables77,042 1,642 8,758 (44,427)(66)36,106 79,055 1,656 
Investments at fair value67,108 1,939 (23,575)45,472 1,939 
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities$4,434 $$$$$$$4,443 $(22)$
Corporate debt securities141 1,430 1,571 (1,430)
CMBS35 (35)35 35 
Loans16,635 1,559 (6,821)3,358 185 14,916 (1,559)
Net derivatives (2)26,017 43,727 12,670 (92)223,184 305,506 (43,727)
Other secured financings1,543 625 2,168 
Long-term debt676,028 25,357 21,730 723,115 15,501 (40,858)
(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes within long-term debt are included in our Consolidated Statement of Comprehensive Income, net of tax.
(2)Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.
Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2021
During the three months ended February 28, 2021, transfers of assets of $75.8 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Loans and other receivables of $42.9 million, CDOs and CLOs of $14.6 million, Corporate equity securities of $9.9 million and Other ABS of $7.5 million due to reduced pricing transparency.
During the three months ended February 28, 2021, transfers of assets of $44.7 million from Level 3 to Level 2 are primarily attributed to:
Corporate debt securities of $17.5 million, Other ABS of $14.5 million and Loans and other receivables of $6.8 million due to greater pricing transparency supporting classification into Level 2.
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During the three months ended February 28, 2021, transfers of liabilities of $236.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Net derivatives of $236.5 million due to reduced pricing transparency.
During the three months ended February 28, 2021, transfers of liabilities of $13.3 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
Net derivatives of $13.3 million due to greater pricing transparency.
Net gains on Level 3 assets were $12.7 million and net losses on Level 3 liabilities were $72.1 million for the three months ended February 28, 2021. Net gains on Level 3 assets were primarily due to increased market values across CDOs and CLOs, Other ABS, Investments at fair value, Loans and other receivables, RMBS and Corporate equity securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives and structured notes within long-term debt.
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 29, 2020 (in thousands):
Three Months Ended February 29, 2020
Balance at
November 30, 2019
Total gains/losses (realized and unrealized) (1)PurchasesSalesSettlementsIssuancesNet transfers into/
(out of) Level 3
Balance at
February 29, 2020
For instruments still held at
February 29, 2020, changes in unrealized gains/(losses) included in:
Earnings (1)Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities$58,301 $(8,195)$2,792 $(1,934)$$$52,679 $103,643 $(8,206)$
Corporate debt securities7,490 1,269 1,478 (503)(601)15,957 25,090 879 
CDOs and CLOs20,081 (2,069)17,594 (17,833)3,179 20,952 (1,823)
RMBS17,740 (280)(3)(487)16,970 (250)
CMBS6,110 (306)(1,401)(139)4,264 571 
Other ABS42,563 (4,159)81,323 (72,032)(1,974)(3,818)41,903 (3,797)
Loans and other receivables64,240 (3,781)12,940 (13,042)(7,087)1,051 54,321 (5,109)
Investments at fair value75,738 (20,392)(76)55,270 (20,392)
Securities purchased under agreements to resell25,000 (25,000)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities$4,487 $291 $(513)$$$$10 $4,275 $65 $
Corporate debt securities340 (189)(13,832)14,079 369 767 (35)
CMBS35 35 
Loans9,463 (9,872)2,781 5,486 7,859 (1)
Net derivatives (2)77,168 (17,528)(278)5,627 192 45,662 110,843 17,460 
Long-term debt480,069 (9,016)128,475 (56,065)543,463 (5,590)14,606 
(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes within long-term debt are included in our Consolidated Statement of Comprehensive Income, net of tax.
(2)Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.
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(Unaudited)
Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 29, 2020
During the three months ended February 29, 2020, transfers of assets of $85.3 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Corporate equity securities of $55.4 million, Corporate debt securities of $16.5 million and Loans and other receivables of $6.0 million due to reduced pricing transparency.
During the three months ended February 29, 2020, transfers of assets of $16.8 million from Level 3 to Level 2 are primarily attributed to:
Other ABS of $6.3 million, Loans and other receivables of $4.9 million and Corporate equity securities of $2.7 million due to greater pricing transparency supporting classification into Level 2.
During the three months ended February 29, 2020, transfers of liabilities of $102.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Net derivatives of $83.0 million and structured notes within long-term debt of $13.1 million due to reduced market and pricing transparency.
During the three months ended February 29, 2020, transfers of liabilities of $107.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
Structured notes within long-term debt of $69.1 million and net derivatives of $37.3 million due to greater market transparency.
Net losses on Level 3 assets were $37.9 million and net gains on Level 3 liabilities were $26.4 million for the three months ended February 29, 2020. Net losses on Level 3 assets were primarily due to decreased market values across Investments at fair value, Corporate equity securities, other ABS and Loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives and valuations of certain structured notes within long-term debt.
Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at February 28, 2021 and November 30, 2020
The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather, the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.
For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.
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(Unaudited)
February 28, 2021
Financial Instruments Owned:Fair Value
(in thousands)
Valuation TechniqueSignificant Unobservable Input(s)Input / RangeWeighted
Average
Corporate equity securities$83,278 
Non-exchange traded securitiesMarket approachPrice$1-$213$76
EBITDA multiple8.0
Corporate debt securities$6,811 Scenario analysisEstimated recovery percentage20 %-44%30%
CDOs and CLOs$24,806 Discounted cash flowsConstant prepayment rate%-20%19%
Constant default rate2%
Loss severity25 %-35%26%
Discount rate/yield%-21%16%
RMBS$21,692 Discounted cash flowsDiscount rate/yield%-4%3%
Cumulative loss rate3%
Duration (years)3.0-5.54.9
Loss severity35%
CMBS$2,671 Discounted cash flowsLoss severity65%
Discount rate/yield16%
Cumulative loss rate10%
Duration (years)0.2
Other ABS$60,594 Discounted cash flowsDiscount rate/yield%-14%9%
Cumulative loss rate%-19%13%
Duration (years)0.9-2.01.5
Market approachPrice$100
Loans and other receivables$79,055 Market approachPrice$31-$101$83
Scenario analysisEstimated recovery percentage%-100%41%
Derivatives$38,014 
Equity optionsVolatility benchmarkingVolatility41 %-57%54%
Interest rate swapsMarket approachBasis points upfront0.7-6.43.3
Investments at fair value$45,472 
Private equity securitiesMarket approachPrice$6-$169$53
Scenario analysisEstimated recovery percentage17%
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities$4,443 Market approachPrice$1
Corporate debt securities$1,571 Scenario analysisEstimated recovery percentage20%
Loans$14,916 Market approachPrice$31-$50$35
Scenario analysisEstimated recovery percentage5%
Derivatives$344,903 
Equity optionsVolatility benchmarkingVolatility29 %-62%46%
Interest rate swapsMarket approachBasis points upfront0.7-6.43.5
Other secured financings$2,168 Scenario analysisEstimated recovery percentage19 %-100%61%
Long-term debt
Structured notes$723,115 Market approachPrice$1040
Price€82-€112€102

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(Unaudited)
November 30, 2020
Financial Instruments OwnedFair Value
(in thousands)
Valuation TechniqueSignificant Unobservable Input(s)Input / RangeWeighted
Average
Corporate equity securities$75,409 
Non-exchange-traded securitiesMarket approachPrice$1-$213$86
EBITDA multiple4.0-8.05.7
Corporate debt securities$23,146 Market approachPrice$69
Scenario analysisEstimated recovery percentage20 %-44%30%
CDOs and CLOs$10,513 Discounted cash flowsConstant prepayment rate20%
Constant default rate2%
Loss severity25 %-30%26%
Discount rate/yield14 %-28%20%
RMBS$21,826 Discounted cash flowsCumulative loss rate%-3%3%
Loss severity35 %-50%36%
Duration (years)2.0-12.95.1
Discount rate/yield%-12%4%
Other ABS$67,816 Discounted cash flowsCumulative loss rate%-28%11%
Loss severity50 %-85%54%
Duration (years)0.2-2.11.3
Discount rate/yield%-16%9%
Market approachPrice$100
Loans and other receivables$76,046 Market approachPrice$31-$100$84
Scenario analysisEstimated recovery percentage19 %-100%52%
Derivatives$19,951 
Equity optionsVolatility benchmarkingVolatility47%
Interest rate swapsMarket approachBasis points upfront1.2-8.04.8
Investments at fair value$67,108 
Private equity securitiesMarket approachPrice$1-$169$34
Scenario analysisEstimated recovery percentage17%
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities$4,434 Market approachPrice$1
Corporate debt securities$141 Scenario analysisEstimated recovery percentage20%
Loans$16,635 Market approachPrice$31-$99$55
Derivatives$46,971 
Equity optionsVolatility benchmarkingVolatility33 %-50%42%
Interest rate swapsMarket approachBasis points upfront1.2 -8.05.4
Other secured financings$1,543 Scenario analysisEstimated recovery percentage19 %-55%45%
Long-term debt
Structured notes$676,028 Market approachPrice$1000
Price€76-€113€99
The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices or a percentage of the reported enterprise fair value are excluded from the above tables. At February 28, 2021 and November 30, 2020, asset exclusions consisted of $2.5 million and $17.3 million, respectively, primarily comprised of CDOs and CLOS, other ABS, CMBS, certain derivatives, loans and other receivables and corporate equity securities. At November 30, 2020, liability exclusions consisted of $0.8 million primarily comprised of certain derivatives and CMBS.
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(Unaudited)
Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
Corporate equity securities, corporate debt securities, loans and other receivables, other ABS, private equity securities, certain derivatives and structured notes using a market approach valuation technique. A significant increase (decrease) in the price of the private equity securities, non-exchange-traded securities, corporate equity and debt securities, other ABS, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the EBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. Depending on whether we are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of interest rate swaps.
Loans and other receivables, corporate debt securities, private equity securities and other secured financings using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument would result in a significantly higher (lower) fair value measurement for the financial instrument.
CDOs and CLOs, RMBS, CMBS and other ABS using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement.
Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.
Fair Value Option Election
We have elected the fair value option for all loans and loan commitments made by our investment banking and capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned and Financial instruments sold, not yet purchased in our Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings in our Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has been elected for certain other secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on Short-term borrowings and Long-term debt measured at fair value under the fair value option (in thousands):
Three Months Ended
February 28, 2021February 29, 2020
Financial instruments owned:
Loans and other receivables$10,696 $1,739 
Financial instruments sold, not yet purchased:
Loans$$(610)
Loan commitments(661)
Short-term borrowings:
Changes in instrument specific credit risk (1)$$57 
Other changes in fair value (2)12 
Long-term debt:
Changes in instrument specific credit risk (1)$(91,982)$29,432 
Other changes in fair value (2)80,819 (37,642)
(1)Changes in instrument specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income, net of tax.
(2)Other changes in fair value are included in Principal transactions revenues in our Consolidated Statements of Earnings.
The following is a summary of the amounts by which contractual principal is greater than (less than) fair value for loans and other receivables, short-term borrowings, other secured financings and long-term debt measured at fair value under the fair value option (in thousands):
February 28, 2021November 30, 2020
Financial instruments owned:
Loans and other receivables (1)$5,826,957 $1,662,647 
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)252,790 287,889 
Long-term debt and short-term borrowings(53,138)(42,819)
Other secured financings2,782 2,782 
(1)Interest income is recognized separately from other changes in fair value and is included in Interest revenues in our Consolidated Statements of Earnings.
(2)Amounts include loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $30.2 million and $30.0 million at February 28, 2021 and November 30, 2020, respectively.
The aggregate fair value of loans and other receivables on nonaccrual status and/or 90 days or greater past due was $5.4 million and $69.7 million at February 28, 2021 and November 30, 2020, respectively, which includes loans and other receivables 90 days or greater past due of $4.1 million and $3.8 million at February 28, 2021 and November 30, 2020, respectively.
Financial Instruments Not Measured at Fair Value
Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented within Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $118.5 million and $34.2 million at February 28, 2021 and November 30, 2020, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 5. Derivative Financial Instruments
Derivative Financial Instruments
Our derivative activities are recorded at fair value in our Consolidated Statements of Financial Condition in Financial instruments owned and Financial instruments sold, not yet purchased, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. We enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. In addition, we apply hedge accounting to: (1) interest rate swaps that have been designated as fair value hedges of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt, and (2) forward foreign exchange contracts designated as hedges to offset the change in the value of certain net investments in foreign operations.
See Note 4, Fair Value Disclosures, and Note 16, Commitments, Contingencies and Guarantees, for additional disclosures about derivative financial instruments.
Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies.
In connection with our derivative activities, we may enter into International Swaps and Derivatives Association, Inc. master netting agreements or similar agreements with counterparties. See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020 for additional information regarding the offsetting of derivative contracts.
The following tables present the fair value and related number of derivative contracts at February 28, 2021 and November 30, 2020 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
February 28, 2021 (1)
AssetsLiabilities
Fair ValueNumber of Contracts (2)Fair ValueNumber of Contracts (2)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC$45,638 $32,653 
Foreign exchange contracts:
Bilateral OTC45,420 18 
Total derivatives designated as accounting hedges45,638 78,073 
Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded2,626 46,454 2,305 16,056 
Cleared OTC404,775 4,746 305,691 4,364 
Bilateral OTC489,918 660 450,254 1,491 
Foreign exchange contracts:
Exchange-traded195 
Bilateral OTC470,949 18,733 450,054 18,609 
Equity contracts:
Exchange-traded1,185,344 951,246 1,220,922 845,486 
Bilateral OTC495,951 2,435 1,529,978 2,487 
Commodity contracts:
Exchange-traded304 3,057 2,070 
Bilateral OTC
Credit contracts:
Cleared OTC34,377 80 36,129 56 
Bilateral OTC4,648 13 8,635 15 
Total derivatives not designated as accounting hedges3,088,892 4,003,968 
Total gross derivative assets/ liabilities:
Exchange-traded1,188,274 1,223,227 
Cleared OTC484,790 374,473 
Bilateral OTC1,461,466 2,484,341 
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded(1,137,116)(1,137,116)
Cleared OTC(372,819)(374,358)
Bilateral OTC(1,094,672)(1,485,629)
Net amounts per Consolidated Statements of Financial Condition (4)$529,923 $1,084,938 
(1)Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(2)Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
November 30, 2020 (1)
AssetsLiabilities
Fair ValueNumber of Contracts (2)Fair ValueNumber of Contracts (2)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC$67,381 $6,891 
Foreign exchange contracts:
Bilateral OTC3,306 11 
Total derivatives designated as accounting hedges67,381 10,197 
Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded2,442 52,620 439 42,611 
Cleared OTC17,379 3,785 114,524 4,307 
Bilateral OTC626,210 1,493 317,534 466 
Foreign exchange contracts:
Exchange-traded180 
Bilateral OTC297,165 15,005 277,628 15,049 
Equity contracts:
Exchange-traded558,304 1,147,486 564,951 971,938 
Bilateral OTC429,304 2,374 1,125,944 2,421 
Commodity contracts:
Exchange-traded64 3,207 2,654 
Credit contracts:
Cleared OTC24,696 39 26,298 31 
Bilateral OTC1,008 11 2,209 11 
Total derivatives not designated as accounting hedges1,956,572 2,429,527 
Total gross derivative assets/liabilities:
Exchange-traded560,810 565,390 
Cleared OTC109,456 147,713 
Bilateral OTC1,353,687 1,726,621 
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded(546,989)(546,989)
Cleared OTC(109,228)(111,654)
Bilateral OTC(899,919)(1,140,016)
Net amounts per Consolidated Statements of Financial Condition (4)$467,817 $641,065 
(1)Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(2)Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table provides information related to gains (losses) recognized in Interest expense in our Consolidated Statements of Earnings related to fair value hedges (in thousands):
Three Months Ended
Gains (Losses)February 28,
2021
February 29,
2020
Interest rate swaps$(43,791)$24,465 
Long-term debt46,811 (24,867)
Total$3,020 $(402)
The following table provides information related to gains (losses) on our net investment hedges recognized in Currency translation and other adjustments, a component of Other comprehensive income (loss), in our Consolidated Statements of Comprehensive Income (in thousands):
Three Months Ended
Gains (Losses)February 28,
2021
February 29,
2020
Foreign exchange contracts$(41,500)$
Total$(41,500)$
The following table presents unrealized and realized gains (losses) on derivative contracts recognized in Principal transactions revenues in our Consolidated Statements of Earnings, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
Three Months Ended
Gains (Losses)February 28,
2021
February 29,
2020
Interest rate contracts$(42,124)$(1,089)
Foreign exchange contracts47,030 (2,900)
Equity contracts(89,697)136,888 
Commodity contracts809 (6,072)
Credit contracts821 1,830 
Total$(83,161)$128,657 
The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework.
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JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at February 28, 2021 (in thousands):
OTC Derivative Assets (1) (2) (3)
0 – 12 Months1 – 5 YearsGreater Than 5 YearsCross-Maturity Netting (4)Total
Equity options and forwards$29,936 $1,526 $13,544 $(20,365)$24,641 
Credit default swaps759 761 
Total return swaps130,651 16,711 (4,147)143,215 
Foreign currency forwards, swaps and options85,919 13,318 (5,524)93,713 
Interest rate swaps, options and forwards163,707 138,245 154,279 (29,567)426,664 
Total$410,215 $170,559 $167,823 $(59,603)688,994 
Cross product counterparty netting(24,263)
Total OTC derivative assets included in Financial instruments owned$664,731 
(1)At February 28, 2021, we held net exchange-traded derivative assets and other credit agreements with a fair value of $61.4 million, which are not included in this table.
(2)OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in our Consolidated Statements of Financial Condition. At February 28, 2021, cash collateral received was $196.2 million.
(3)Derivative fair values include counterparty netting within product category.
(4)Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
OTC Derivative Liabilities (1) (2) (3)
0 – 12 Months1 – 5 YearsGreater Than 5 YearsCross-Maturity Netting (4)Total
Equity options and forwards$19,834 $522,218 $143,586 $(20,365)$665,273 
Credit default swaps20 3,530 3,550 
Total return swaps152,604 382,556 1,641 (4,147)532,654 
Foreign currency forwards, swaps and options114,279 8,811 (5,524)117,566 
Fixed income forwards5,359 5,359 
Interest rate swaps, options and forwards140,177 56,586 114,364 (29,567)281,560 
Total$432,273 $973,701 $259,591 $(59,603)1,605,962 
Cross product counterparty netting(24,263)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased$1,581,699 
(1)At February 28, 2021, we held net exchange-traded derivative liabilities and other credit agreements with a fair value of $91.9 million, which are not included in this table.
(2)OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in our Consolidated Statements of Financial Condition. At February 28, 2021, cash collateral pledged was $588.7 million.
(3)Derivative fair values include counterparty netting within product category.
(4)Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
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JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents the counterparty credit quality with respect to the fair value of our OTC derivative assets at February 28, 2021 (in thousands):
Counterparty credit quality (1):
A- or higher$162,505 
BBB- to BBB+38,774 
BB+ or lower201,073 
Unrated262,379 
Total$664,731 
(1)We utilize internal credit ratings determined by our Risk Management department. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
Credit Related Derivative Contracts
The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions):
February 28, 2021
External Credit Rating
Investment GradeNon-investment GradeUnratedTotal Notional
Credit protection sold:
Index credit default swaps$921.0 $459.0 $$1,380.0 
Single name credit default swaps87.2 6.2 0.2 93.6 
November 30, 2020
External Credit Rating
Investment GradeNon-investment GradeUnratedTotal Notional
Credit protection sold:
Index credit default swaps$62.0 $262.8 $$324.8 
Single name credit default swaps6.2 0.2 6.4 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Contingent Features
Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts we have posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):
February 28, 2021November 30, 2020
Derivative instrument liabilities with credit-risk-related contingent features$464.6 $284.6 
Collateral posted(33.0)(129.8)
Collateral received244.1 141.4 
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)675.7 296.2 
(1)These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.

Note 6. Collateralized Transactions
Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in our Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of our dealer operations. We monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and request additional collateral or return excess collateral, as appropriate. We pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned, at fair value, and noted parenthetically as Securities pledged in our Consolidated Statements of Financial Condition.
In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral in our Consolidated Statements of Financial Condition.
The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by class of collateral pledged (in thousands):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
February 28, 2021
Securities Lending ArrangementsRepurchase AgreementsTotal
Collateral Pledged:
Corporate equity securities$2,067,474 $245,823 $2,313,297 
Corporate debt securities372,966 2,113,427 2,486,393 
Mortgage-backed and asset-backed securities1,378,273 1,378,273 
U.S. government and federal agency securities20,353 9,417,370 9,437,723 
Municipal securities138,344 138,344 
Sovereign obligations58,284 2,584,304 2,642,588 
Loans and other receivables981,487 981,487 
Total$2,519,077 $16,859,028 $19,378,105 
November 30, 2020
Securities Lending ArrangementsRepurchase AgreementsObligation To Return Securities Received As Collateral, at fair valueTotal
Collateral Pledged:
Corporate equity securities$1,371,978 $157,912 $7,517 $1,537,407 
Corporate debt securities369,218 1,869,844 2,239,062 
Mortgage-backed and asset-backed securities1,547,140 1,547,140 
U.S. government and federal agency securities14,789 7,149,992 7,164,781 
Municipal securities278,470 278,470 
Sovereign obligations54,763 2,763,032 2,817,795 
Loans and other receivables1,392,883 1,392,883 
Total$1,810,748 $15,159,273 $7,517 $16,977,538 
The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by remaining contractual maturity (in thousands):
February 28, 2021
Overnight and ContinuousUp to 30 Days31-90 DaysGreater than 90 DaysTotal
Securities lending arrangements$1,080,237 $$482,281 $956,559 $2,519,077 
Repurchase agreements7,711,109 3,146,550 3,313,696 2,687,673 16,859,028 
Total$8,791,346 $3,146,550 $3,795,977 $3,644,232 $19,378,105 
November 30, 2020
Overnight and ContinuousUp to 30 Days31-90 DaysGreater than 90 DaysTotal
Securities lending arrangements$636,256 $59,735 $459,455 $655,302 $1,810,748 
Repurchase agreements5,510,476 1,747,526 5,019,885 2,881,386 15,159,273 
Obligation to return securities received as collateral, at fair value7,517 7,517 
Total$6,154,249 $1,807,261 $5,479,340 $3,536,688 $16,977,538 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. We also receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities. In many instances, we are permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At February 28, 2021 and November 30, 2020, the approximate fair value of securities received as collateral by us that may be sold or repledged was $32.8 billion and $25.9 billion, respectively. At February 28, 2021 and November 30, 2020, a substantial portion of the securities received by us had been sold or repledged.
Offsetting of Securities Financing Agreements
To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020 for additional information regarding the offsetting of securities financing agreements.
The following tables provide information regarding repurchase agreements, securities borrowing and lending arrangements and securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, that are recognized in our Consolidated Statements of Financial Condition and 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands).
February 28, 2021
Gross AmountsNetting in Consolidated Statement of Financial ConditionNet Amounts in Consolidated Statement of Financial ConditionAdditional Amounts Available for Setoff (1)Available Collateral (2)Net Amount (3)
Assets:
Securities borrowing arrangements$7,150,657 $$7,150,657 $(567,061)$(1,984,216)$4,599,380 
Reverse repurchase agreements16,331,676 (9,651,392)6,680,284 (283,889)(6,328,407)67,988 
Liabilities:
Securities lending arrangements$2,519,077 $$2,519,077 $(567,061)$(1,908,973)$43,043 
Repurchase agreements16,859,028 (9,651,392)7,207,636 (283,889)(6,408,994)514,753 
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November 30, 2020
Gross AmountsNetting in Consolidated Statement of Financial ConditionNet Amounts in Consolidated Statement of Financial ConditionAdditional Amounts Available for Setoff (1)Available Collateral (2)Net Amount (4)
Assets:
Securities borrowing arrangements$6,934,762 $$6,934,762 $(395,342)$(1,706,046)$4,833,374 
Reverse repurchase agreements11,939,773 (6,843,004)5,096,769 (412,327)(4,578,560)105,882 
Securities received as collateral, at fair value7,517 7,517 7,517 
Liabilities:
Securities lending arrangements$1,810,748 $$1,810,748 $(395,342)$(1,397,550)$17,856 
Repurchase agreements15,159,273 (6,843,004)8,316,269 (412,327)(7,122,422)781,520 
Obligation to return securities received as collateral, at fair value7,517 7,517 7,517 
(1)Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s default, but which are not netted in the balance sheet because other netting provisions of U.S. GAAP are not met.
(2)Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
(3)Amounts include $4,511.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,383.8 million, and $505.0 million of repurchase agreements, for which we have pledged securities collateral of $520.2 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.
(4)Amounts include $4,757.8 million of securities borrowing arrangements, for which we have received securities collateral of $4,617.0 million, and $720.0 million of repurchase agreements, for which we have pledged securities collateral of $733.9 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.
Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations
Cash and securities segregated in accordance with regulatory regulations and deposited with clearing and depository organizations totaled $615.1 million and $604.3 million at February 28, 2021 and November 30, 2020, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers.

Note 7. Securitization Activities
We engage in securitization activities related to corporate loans, mortgage loans, consumer loans and mortgage-backed and other asset-backed securities. In our securitization transactions, we transfer these assets to special purpose entities (“SPEs”) and act as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of our securitization transactions are the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of VIEs; however, we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. See Note 8, Variable Interest Entities, for further discussion on VIEs and our determination of the primary beneficiary.
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We account for our securitization transactions as sales, provided we have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in our Consolidated Statements of Earnings prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage-backed and other-asset backed securities or CLOs). These securities are included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy. For further information on fair value measurements and the fair value hierarchy, refer to Note 4, Fair Value Disclosures, herein, and Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020.
The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Transferred assets$3,583.5 $2,334.6 
Proceeds on new securitizations3,583.1 2,334.7 
Cash flows received on retained interests6.3 7.0 
We have no explicit or implicit arrangements to provide additional financial support to these SPEs, have no liabilities related to these SPEs and do not have any outstanding derivative contracts executed in connection with these securitization activities at February 28, 2021 and November 30, 2020.
The following tables summarize our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions):
February 28, 2021November 30, 2020
Securitization TypeTotal AssetsRetained InterestsTotal AssetsRetained Interests
U.S. government agency RMBS$505.5 $6.8 $562.5 $7.8 
U.S. government agency CMBS2,051.0 102.3 2,461.2 205.2 
CLOs5,712.5 70.2 3,345.5 39.5 
Consumer and other loans1,428.9 77.8 1,290.6 56.6 
Total assets represent the unpaid principal amount of assets in the SPEs in which we have continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting our retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Our risk of loss is limited to this fair value amount which is included in total Financial instruments owned in our Consolidated Statements of Financial Condition.
Although not obligated, in connection with secondary market-making activities we may make a market in the securities issued by these SPEs. In these market-making transactions, we buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs. To the extent we purchased securities through these market-making activities and we are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8, Variable Interest Entities.

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Note 8. Variable Interest Entities
VIEs are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.
Our variable interests in VIEs include debt and equity interests, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from:
Purchases of securities in connection with our trading and secondary market making activities;
Retained interests held as a result of securitization activities;
Acting as placement agent and/or underwriter in connection with client-sponsored securitizations;
Financing of agency and non-agency mortgage-backed and other asset-backed securities;
Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation agreements, forward sale agreements, reverse repurchase agreements, and revolving loan and note commitments; and
Loans to, investments in and fees from various investment vehicles.
We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires judgment. Our considerations in determining the VIE’s most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE’s purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE’s initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE’s significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the “power” criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the “power” criteria of the primary beneficiary.
We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests.
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Consolidated VIEs
The following table presents information about our consolidated VIEs at February 28, 2021 and November 30, 2020 (in millions). The assets and liabilities in the tables below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.
February 28, 2021November 30, 2020
Secured Funding VehiclesOtherSecured Funding VehiclesOther
Cash (1)$$1.2 $$1.2 
Financial instruments owned12.6 5.2 
Securities purchased under agreements to resell (2)3,934.3 2,908.9 
Receivable from brokers31.2 12.9 
Other assets0.2 0.1 
Total assets$3,934.3 $45.2 $2,908.9 $19.4 
Financial instruments sold, not yet purchased$$9.4 $$2.5 
Other secured financings (3)3,933.2 2,907.8 
Other liabilities (4)1.1 0.5 1.1 0.4 
Total liabilities$3,934.3 $9.9 $2,908.9 $2.9 
(1)Approximately $1.2 million and $0.7 million of the cash amounts at February 28, 2021 and November 30, 2020, respectively, represent cash on deposit with related consolidated entities and are eliminated in consolidation.
(2)Securities purchased under agreements to resell primarily represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation.
(3)Approximately $131.2 million and $138.2 million of the other secured financings amounts at February 28, 2021 and November 30, 2020, respectively, are with related consolidated entities, which are eliminated in consolidation.
(4)Approximately $0.3 million of the other liabilities amounts at both February 28, 2021 and November 30, 2020 represent intercompany payables with related consolidated entities, which are eliminated in consolidation.
Secured Funding Vehicles. We are the primary beneficiary of asset-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage loans, and asset-backed securities pursuant to the terms of a master repurchase agreement. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement, which we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders.
Other. We are the primary beneficiary of certain investment vehicles set up for the benefit of our employees. We manage and invest alongside our employees in these vehicles. The assets of these VIEs consist of private equity securities, and are available for the benefit of the entities’ equity holders. Our variable interests in these vehicles consist of equity securities. The creditors of these VIEs do not have recourse to our general credit and each such VIE’s assets are not available to satisfy any other debt.
Nonconsolidated VIEs
The following tables present information about our variable interests in nonconsolidated VIEs (in millions):
February 28, 2021
Carrying AmountMaximum Exposure to LossVIE Assets
AssetsLiabilities
CLOs$163.4 $5.4 $1,343.5 $9,595.0 
Consumer loan and other asset-backed vehicles266.9 363.3 2,580.5 
Related party private equity vehicles18.7 29.5 52.3 
Other investment vehicles751.5 752.7 11,072.6 
Total$1,200.5 $5.4 $2,489.0 $23,300.4 
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November 30, 2020
Carrying AmountMaximum Exposure to LossVIE Assets
AssetsLiabilities
CLOs$60.7 $0.2 $642.7 $6,849.1 
Consumer loan and other asset-backed vehicles251.6 377.2 2,462.7 
Related party private equity vehicles19.0 30.0 53.0 
Other investment vehicles739.7 740.9 12,570.2 
Total$1,071.0 $0.2 $1,790.8 $21,935.0 
Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of our variable interests in the VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with our variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE.
Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests, sub-investment grade and senior secured U.S. loans, and senior secured Euro denominated corporate leveraged loans and bonds. We underwrite securities issued in CLO transactions on behalf of sponsors and provide advisory services to the sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with CLOs where we have been involved in providing underwriting and/or advisory services consist of the following:
Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs;
Warehouse funding arrangements in the form of:
Participation interests in corporate loans held by CLOs and commitments to fund such participation interests, and
Reverse repurchase agreements with collateral margin maintenance obligations and commitments to fund such reverse repurchase agreements;
Trading positions in securities issued in CLO transactions; and
Investments in variable funding notes issued by CLOs.
Asset-Backed Vehicles. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities, forward purchase agreements and reverse repurchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer loans, mortgage loans, and trade claims. In addition, we may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. We do not control the activities of these entities.
Related Party Private Equity Vehicles. We committed to invest in private equity funds, (the “JCP Funds”, including JCP Fund V (see Note 9, Investments)) managed by Jefferies Capital Partners, LLC (the “JCP Manager”). Additionally, we committed to invest in the general partners of the JCP Funds (the “JCP General Partners”) and the JCP Manager. Our variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the “JCP Entities”) consist of equity interests that, in total, provide us with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At both February 28, 2021 and November 30, 2020, our total equity commitment in the JCP Entities was $133.0 million, of which $122.1 million and $122.0 million had been funded, respectively. The carrying value of our equity investments in the JCP Entities was $18.7 million and $19.0 million at February 28, 2021 and November 30, 2020, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments.
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Other Investment Vehicles. At February 28, 2021 and November 30, 2020, we had equity commitments to invest $634.2 million and $749.3 million, respectively, in various other investment vehicles, of which $633.0 million and $748.1 million was funded, respectively. The carrying value of our equity investments was $751.5 million and $739.7 million at February 28, 2021 and November 30, 2020, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets.
Mortgage-Backed and Other Asset-Backed Secured Funding Vehicles. In connection with our secondary trading and market-making activities, we buy and sell agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Financial instruments owned in our Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities.
We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) or GNMA (“Ginnie Mae”)) or non-agency-sponsored SPEs and may purchase loans or mortgage-backed securities from third-parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. We do not consolidate agency-sponsored securitizations as we do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, we are not the servicer of non-agency-sponsored securitizations and therefore do not have power to direct the most significant activities of the SPEs and accordingly, do not consolidate these entities. We may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.
At February 28, 2021 and November 30, 2020, we held $1,642.6 million and $1,571.6 million of agency mortgage-backed securities, respectively, and $193.8 million and $252.0 million of non-agency mortgage-backed and other asset-backed securities, respectively, as a result of our secondary trading and market-making activities, and underwriting, placement and structuring activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. These mortgage-backed and other asset-backed secured funding vehicles discussed are not included in the above table containing information about our variable interests in nonconsolidated VIEs.

Note 9. Investments
At February 28, 2021, we had investments in Jefferies Finance LLC (“Jefferies Finance”) and Berkadia. Our investments in Jefferies Finance and Berkadia have been accounted for under the equity method and have been included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in our Consolidated Statements of Earnings. We have limited partnership interests of 11% and 50% in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, “JCP Fund V”), respectively, which are private equity funds managed by a team led by one of our directors and our Chairman of the Executive Committee.
Jefferies Finance
Jefferies Finance, a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”), is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers, as well as manages loan funds and CLOs. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. In addition, Jefferies Finance is a registered investment advisor under the Investment Advisers Act of 1940 and, through two of its wholly-owned subsidiaries, Apex Credit Partners LLC and JFIN Asset Management LLC, acts as an investment advisor for various loan funds and CLOs managing direct lending and broadly syndicated loan products.
At February 28, 2021, we and MassMutual each had equity commitments to Jefferies Finance of $750.0 million, for a combined total commitment of $1.5 billion. At February 28, 2021, we had funded $652.4 million of our $750.0 million commitment, leaving $97.6 million unfunded. The investment commitment is scheduled to expire on March 1, 2022 with automatic one year extensions absent a 60 days termination notice by either party.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at February 28, 2021. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2022 with automatic one year extensions absent a 60 days termination notice by either party. At February 28, 2021, we had funded $0.0 million of our $250.0 million commitment. The following summarizes the activity included in our Consolidated Statements of Earnings related to the facility (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Interest income$0.3 $0.8 
Unfunded commitment fees0.3 0.3 
The following is a summary of selected financial information for Jefferies Finance (in millions):
February 28, 2021November 30, 2020
Our total equity balance$635.2 $604.6 
Three Months Ended
February 28, 2021February 29, 2020
Net earnings$61.3 $20.7 
The following summarizes activity related to our other transactions with Jefferies Finance (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Origination and syndication fee revenues (1)$70.3 $37.7 
Origination fee expenses (1)12.3 5.6 
CLO placement fee revenues (2)2.4 0.4 
Underwriting fees (3)0.5 0.3 
Service fees (4)31.5 25.2 
(1)We engage in the origination and syndication of loans underwritten by Jefferies Finance. In connection with such services, we earned fees, which are recognized in Investment banking revenues in our Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized as Business development expenses in our Consolidated Statements of Earnings.
(2)We act as a placement agent for CLOs managed by Jefferies Finance, for which we recognized fees, which are included in Investment banking revenues in our Consolidated Statements of Earnings. At February 28, 2021 and November 30, 2020, we held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.
(3)We acted as underwriter in connection with term loans issued by Jefferies Finance.
(4)Under a service agreement, we charge Jefferies Finance for services provided.

In connection with non-U.S. dollar loans originated by Jefferies Finance to borrowers who are investment banking clients of ours, we have entered into an agreement to indemnify Jefferies Finance with respect to any foreign currency exposure.
Receivables from Jefferies Finance, included in Other assets in our Consolidated Statements of Financial Condition, were $12.4 million and $24.2 million at February 28, 2021 and November 30, 2020, respectively. Payables to Jefferies Finance related to cash deposited with us and included in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition, were $13.7 million at both February 28, 2021 and November 30, 2020.


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(Unaudited)
Berkadia
Berkadia is a commercial mortgage banking and servicing joint venture that was formed in 2009 by Jefferies and Berkshire Hathaway Inc. On October 1, 2018, Jefferies transferred its 50% voting equity interest in Berkadia and related arrangements to us. As a result, we are entitled to receive 45% of the profits of Berkadia. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies or other investors. Berkadia also is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.
The following is a summary of selected financial information for Berkadia (in millions):
February 28, 2021November 30, 2020
Our total equity balance$330.8 $301.2 
Three Months Ended
February 28, 2021February 29, 2020
Net earnings$66.7 $48.7 
We received distributions from Berkadia on our equity interest as follows (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Distributions$0.3 $36.2 
At February 28, 2021 and November 30, 2020, we had commitments to purchase $580.1 million and $401.0 million, respectively, in agency CMBS from Berkadia.
JCP Fund V
The amount of our investments in JCP Fund V included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition was $17.0 million and $17.4 million at February 28, 2021 and November 30, 2020, respectively. We account for these investments at fair value based on the NAV of the funds provided by the fund managers (see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020). The following summarizes the results from these investments which are included in Principal transactions revenues in our Consolidated Statements of Earnings (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Net gains (losses) from our investments in JCP Fund V$(0.5)$1.5 
At both February 28, 2021 and November 30, 2020, we were committed to invest equity of up to $85.0 million in JCP Fund V. At February 28, 2021 and November 30, 2020, our unfunded commitment relating to JCP Fund V was $8.9 million and $9.1 million, respectively.
The following is a summary of the Net change in net assets resulting from operations for 100.0% of JCP Fund V, in which we owned effectively 35.2% at February 28, 2021of the combined equity interests (in thousands):
Three Months Ended December 31,
20202019
Net decrease in net assets resulting from operations (1)$(1,024)$(1,397)
(1)Financial information for JCP Fund V within our results of operations for the three months ended February 28, 2021 and February 29, 2020 is included based on the presented periods.

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Note 10. Goodwill and Intangible Assets
Goodwill
Goodwill attributed to our reportable business segments are as follows (in thousands):
February 28, 2021November 30, 2020
Investment Banking and Capital Markets$1,650,213 $1,646,523 
Asset Management429 410 
Total goodwill$1,650,642 $1,646,933 
The following table is a summary of the changes to goodwill for the three months ended February 28, 2021 (in thousands):
Balance at November 30, 2020$1,646,933 
Currency translation and other adjustments3,709 
Balance at February 28, 2021$1,650,642 
Intangible Assets
Intangible assets are included in Other assets in our Consolidated Statements of Financial Condition. The following tables present the gross carrying amount, changes in carrying amount, net carrying amount and weighted average amortization period of identifiable intangible assets at February 28, 2021 and November 30, 2020 (dollars in thousands):
February 28, 2021Weighted average remaining lives (years)
Gross costAccumulated amortizationNet carrying amount
Customer relationships$126,608 $(78,216)$48,392 9.3
Trade name129,604 (29,680)99,924 27.0
Exchange and clearing organization membership interests and registrations7,923 — 7,923 N/A
Total$264,135 $(107,896)$156,239 

November 30, 2020Weighted average remaining lives (years)
Gross costAccumulated amortizationNet carrying amount
Customer relationships$126,080 $(75,776)$50,304 9.4
Trade name128,840 (28,585)100,255 27.3
Exchange and clearing organization membership interests and registrations7,884 — 7,884 N/A
Total$262,804 $(104,361)$158,443 
Amortization Expense
For finite life intangible assets, aggregate amortization expense amounted to $3.0 million for both the three months ended February 28, 2021 and February 29, 2020. These expenses are included in Other expenses in our Consolidated Statements of Earnings.
The estimated future amortization expense for the five succeeding fiscal years is as follows (in thousands):
Remainder of fiscal 2021$9,136 
Year ending November 30, 20229,239 
Year ending November 30, 20238,258 
Year ending November 30, 20248,258 
Year ending November 30, 20258,258 
43

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)

Note 11. Short-Term Borrowings
Short-term borrowings at February 28, 2021 and November 30, 2020 mature in one year or less and include the following (in thousands):
February 28, 2021November 30, 2020
Bank loans (1)$876,141 $752,848 
Floating rate puttable notes (1)6,800 6,800 
Equity-linked notes (2)5,067 
Total short-term borrowings$882,941 $764,715 
(1)These Short-term borrowings are recorded at cost in our Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature.
(2)See Note 4, Fair Value Disclosures, for further information on these notes.
At February 28, 2021, the weighted average interest rate on short-term borrowings outstanding is 1.82% per annum.
Our bank loans include facilities that contain certain covenants that, among other things, require us to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of our subsidiaries that are borrowers. At February 28, 2021, we were in compliance with all covenants under these facilities. Our facilities included within bank loans at February 28, 2021 and November 30, 2020 were as follows (in thousands):
February 28, 2021November 30, 2020
Bank of New York Mellon Master Loan Agreement (1)$300,000 $300,000 
JPMorgan Chase Bank, N.A. Credit Facility (2)274,000 246,000 
Royal Bank of Canada Credit Facility (3)200,000 200,000 
Bank of New York Mellon Credit Facility (4)100,000 
Total$874,000 $746,000 
(1)Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement.
(2)Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (“LIBOR”), as defined in this credit facility agreement.
(3)Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%.
(4)Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%.
In addition, the Bank of New York Mellon has agreed to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $150.0 million. The Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for our U.S. broker-dealer, Jefferies LLC. At February 28, 2021, we were in compliance with all debt covenants under the Intraday Credit Facility.
44

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 12. Long-Term Debt
The following summarizes our long-term debt carrying values (including unamortized discounts and premiums, valuation adjustments and debt issuance costs, where applicable) (in thousands):
MaturityEffective Interest RateFebruary 28,
2021
November 30,
2020
Unsecured long-term debt:
2.250% Euro Medium Term NotesJuly 13, 20220%$$4,638 
5.125% Senior NotesJanuary 20, 20234.47%758,792 759,901 
1.000% Euro Medium Term NotesJuly 19, 20241.00%602,401 595,700 
4.850% Senior Notes (1)January 15, 20274.93%790,942 809,039 
6.450% Senior DebenturesJune 8, 20275.46%368,445 369,057 
4.150% Senior NotesJanuary 23, 20304.26%989,807 989,574 
 2.750% Senior Notes (1)October 15, 20322.85%456,828 485,134 
6.250% Senior DebenturesJanuary 15, 20366.03%510,724 510,834 
6.500% Senior NotesJanuary 20, 20436.09%419,719 419,826 
Structured notes (2)VariousVarious1,784,157 1,712,245 
Total unsecured long-term debt6,681,815 6,655,948 
Secured long-term debt
Revolving Credit Facility189,893 189,732 
Secured Bank LoanSeptember 27, 202150,000 50,000 
Total long-term debt (3)$6,921,708 $6,895,680 
(1)The carrying values of these senior notes includes a net gain of $46.8 million and a net loss of $24.9 million in the three months ended February 28, 2021 and February 29, 2020, respectively, associated with interest rate swaps based on designation as fair value hedges. See Note 5, Derivative Financial Instruments, for further information.
(2)These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. A weighted average coupon rate is not meaningful, as all of the structured notes are carried at fair value.
(3)The Total Long-term debt has a fair value of $7,589.0 million and $7,575.2 million at February 28, 2021 and November 30, 2020, respectively, which would be classified as Level 2 and Level 3 in the fair value hierarchy.
During the three months ended February 28, 2021, long-term debt increased $26.0 million, primarily due to approximately $54.1 million of structured notes issuances, net of retirements, and changes in instrument specific credit risk on structured notes, partially offset by losses associated with interest rate swaps based on their designation as fair value hedges. At February 28, 2021, all of our structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. Gains and losses in the fair value of structured notes resulting from non-credit components are recognized within Other adjustments on the Consolidated Statements of Cash Flow.
45

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
We have a Revolving Credit Facility with a group of commercial banks. At February 28, 2021, borrowings under the Revolving Credit Facility amounted to $189.9 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Revolving Credit Facility agreement. The Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of our subsidiaries. Throughout the period and at February 28, 2021, no instances of noncompliance with the Revolving Credit Facility covenants occurred and we expect to remain in compliance given our current liquidity and anticipated funding requirements given our business plan and profitability expectations.
One of our subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (“Secured Bank Loan”). This Secured Bank Loan is collateralized by certain trading securities. Interest on the Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At February 28, 2021, we were in compliance with all covenants under the Loan and Security Agreement.

Note 13. Revenues from Contracts with Customers
The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands):
Three Months Ended 
February 28, 2021February 29, 2020
Revenues from contracts with customers:
Commissions and other fees$236,938 $179,535 
Investment banking1,003,662 592,002 
Asset management fees6,913 4,404 
Total revenue from contracts with customers1,247,513 775,941 
Other sources of revenue:
Principal transactions791,219 371,902 
Revenue from strategic affiliates30,470 7,316 
Interest219,021 294,668 
Other60,588 29,729 
Total revenues$2,348,811 $1,479,556 
Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e., the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third-parties.
46

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following provides detailed information on the recognition of our revenues from contracts with customers:
Commissions and Other Fees. We earn commission and other fee revenue by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commissions revenues are generally paid on settlement date and we record a receivable between trade-date and payment on settlement date. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third-parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. We act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs our payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in our Consolidated Statements of Earnings. We also earn investment research fees for the sales of our proprietary investment research when a contract with a client has been identified. The delivery of investment research services represents a distinct performance obligation that is satisfied over time when the performance obligation is to provide ongoing access to a research platform or research analysts, with fees recognized on a straight-line basis over the period in which the performance obligation is satisfied. The performance obligation is satisfied at a point in time when the performance obligation is to provide individual interactions with research analysts or research events, with fees recognized on the interaction date.
We earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as we determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved.
Investment Banking. We provide our clients with a full range of financial advisory and underwriting services. Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in our Consolidated Statements of Earnings and any expenses reimbursed by our clients are recognized as Investment banking revenues.
Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within Underwriting costs in our Consolidated Statements of Earnings as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues.
47

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Asset Management Fees. We earn management and performance fees in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/ or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, “high-water marks” or other performance targets. The performance period related to our performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.
Disaggregation of Revenue
The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands):
Three Months Ended
February 28, 2021February 29, 2020
Reportable SegmentReportable Segment
Investment
Banking
and Capital
Markets
Asset ManagementTotalInvestment
Banking
and Capital
Markets
Asset ManagementTotal
Major business activity:
Investment banking - Advisory$311,439 $$311,439 $343,158 $$343,158 
Investment banking - Underwriting692,223 692,223 248,844 248,844 
Equities (1)233,539 233,539 176,249 176,249 
Fixed income (1)3,399 3,399 3,286 3,286 
Asset management6,913 6,913 4,404 4,404 
Total$1,240,600 $6,913 $1,247,513 $771,537 $4,404 $775,941 
Primary geographic region:
Americas$1,026,916 $6,584 $1,033,500 $649,069 $980 $650,049 
Europe163,737 329 164,066 79,438 3,424 82,862 
Asia Pacific49,947 49,947 43,030 43,030 
Total$1,240,600 $6,913 $1,247,513 $771,537 $4,404 $775,941 
(1)Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue.
Refer to Note 18, Segment Reporting, for a further discussion on the allocation of revenues to geographic regions.
Information on Remaining Performance Obligations and Revenue Recognized from Past Performance
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at February 28, 2021. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at February 28, 2021.
During the three months ended February 28, 2021 and February 29, 2020, we recognized $8.2 million and $6.4 million, respectively, of revenue related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, we recognized $2.9 million, and $5.6 million, during the three months ended February 28, 2021 and February 29, 2020, respectively, of revenues primarily associated with distribution services, a portion of which relates to prior periods.
Contract Balances
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
48

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Our deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenues at February 28, 2021 and November 30, 2020 were $11.5 million and $10.0 million, respectively, which are recorded in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. During the three months ended February 28, 2021 and February 29, 2020, we recognized revenues of $3.4 million and $2.6 million, respectively, that were recorded as deferred revenue at the beginning of the periods.
We had receivables related to revenues from contracts with customers of $303.0 million and $278.5 million at February 28, 2021 and November 30, 2020, respectively. We estimate an allowance for credit losses on our investment banking fee receivables using a provisioning matrix based on the shared risk characteristics and historical loss experience for such receivables. In some instances, we may adjust the allowance calculated based on the provision matrix to incorporate a specific allowance based on the unique credit risk profile of a receivable. The provisioning matrix is periodically updated to reflect changes in the underlying portfolio's credit characteristics and most recent historical loss data.
The allowance for credit losses for the three months ended February 28, 2021 and February 29, 2020 is as follows:
Three Months Ended
February 28, 2021February 29, 2020
Beginning balance$19,788 $6,817 
Adjustment for change in accounting principle for current expected credit losses(3,594)
Bad debt expense, net of reversals626 1,340 
Charge-offs(425)(207)
Recoveries collected(2,384)(301)
Ending balance (1)$14,011 $7,649 
(1)The allowance for doubtful accounts balances are substantially all related to mergers and acquisitions and restructuring fee receivables, which include recoverable expense receivables.
Contract Costs
We capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized.
At February 28, 2021 and November 30, 2020, capitalized costs to fulfill a contract were $1.3 million and $1.8 million, respectively, which are recorded in Receivables – Fees, interest and other in our Consolidated Statements of Financial Condition. For the three months ended February 28, 2021 and February 29, 2020, we recognized expenses of $1.2 million and $1.9 million, respectively, related to costs to fulfill a contract that were capitalized as of the beginning of the period. There were no significant impairment charges recognized in relation to these capitalized costs during the three months ended February 28, 2021 and February 29, 2020.

Note 14. Compensation Plans
Jefferies sponsors our following share-based compensation plans: the Incentive Compensation Plan, the Employee Stock Purchase Plan and the Deferred Compensation Plan. The outstanding and future share-based awards relating to these plans relate to Jefferies common shares. The fair value of share-based awards is estimated on the date of grant based on the market price of the underlying common stock less the impact of market conditions and selling restrictions subsequent to vesting, if any, and is amortized as compensation expense over the related requisite service periods. We are allocated costs associated with awards granted to our employees under such plans.
49

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
During the three months ended February 28, 2021, Jefferies also granted to certain of our senior executives nonqualified stock options pursuant to the Incentive Compensation Plan and granted stock appreciation rights. The total initial fair value of the share-based awards was recognized immediately as compensation expense at the time the award was granted as the awards have no future service requirements. The stock appreciation rights will be settled on a cash basis or, at the sole discretion of the Compensation Committee of the Board of Directors of Jefferies, may be converted irrevocably to a share-settled awards and are considered to be liability-classified share-based awards. Subsequent changes in the fair value of the outstanding stock appreciation rights are recognized currently on an ongoing basis in Compensation and benefits expense.
In addition, we sponsor non-share-based compensation plans. Non-share-based compensation plans sponsored by us include a profit sharing plan and other forms of restricted cash awards.
The components of total compensation cost associated with certain of our compensation plans are as follows (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Components of compensation cost:
Restricted cash awards (1)$49.1 $77.3 
Stock options and stock appreciation rights39.4 
Restricted stock and RSUs (2)4.2 6.5 
Profit sharing plan4.0 4.1 
Total compensation cost$96.7 $87.9 
(1)The decrease is primarily a result of the accelerated amortization recognized in the year ended November 30, 2020 of certain cash-based awards that had been granted during previous years, which were amended to remove any service requirements for vesting in the awards.
(2)Total compensation cost associated with restricted stock and restricted stock units (“RSUs”) includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks.
Remaining unamortized amounts related to certain compensation plans at February 28, 2021 are as follows (dollars in millions):
Remaining Unamortized AmountsWeighted Average Vesting Period (in Years)
Non-vested share-based awards$25.0 2
Restricted cash awards (1)423.0 3
Total$448.0 
(1)    The remaining unamortized amount is included within Other assets in our Consolidated Statement of Financial Condition.
For detailed descriptions on the Company’s compensation plans, see Note 16, Compensation Plans, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020.

Note 15. Income Taxes
At February 28, 2021 and November 30, 2020, we had approximately $190.7 million and $168.6 million, respectively, of total gross unrecognized tax benefits. The total amount of unrecognized benefits that, if recognized, would favorably affect the effective tax rate was $151.3 million and $133.9 million (net of Federal benefit) at February 28, 2021 and November 30, 2020, respectively.
We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in our Consolidated Statements of Earnings. At February 28, 2021 and November 30, 2020, we had interest accrued of approximately $68.2 million and $65.4 million, respectively, included in Accrued expenses and other liabilities. NaN material penalties were accrued for the three months ended February 28, 2021 and the year ended November 30, 2020.
50

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
We are currently under examination by a number of taxing jurisdictions. Though we do not expect that resolution of these examinations will have a material effect on our consolidated financial position, they may have a material impact on our consolidated results of operations for the period in which resolution occurs.
The table below summarizes the earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate:
JurisdictionTax Year
United States2017
New Jersey2010
New York State2001
New York City2006
United Kingdom2019
Italy2012
Hong Kong2015
India2010
For the three months ended February 28, 2021, the provision for income taxes was $177.3 million, equating to an effective tax rate of 26.4%. For the three months ended February 29, 2020, the provision for income taxes was $64.0 million, equating to an effective tax rate of 27.2%.

Note 16. Commitments, Contingencies and Guarantees
Commitments
The following table summarizes our commitments at February 28, 2021 (in millions):
Expected Maturity Date (fiscal years)
202120222023 
and 
2024
2025 
and 
2026
2027 
and 
Later
Maximum Payout
Equity commitments (1)$208.9 $99.0 $$$23.5 $331.4 
Loan commitments (1)49.5 260.0 25.0 1.4 335.9 
Underwriting commitments224.0 224.0 
Forward starting reverse repos (2)5,703.8 193.7 4.2 5,901.7 
Forward starting repos (2)3,627.2 4.2 3,631.4 
Other unfunded commitments (1)135.3 25.0 136.1 296.4 
Total commitments$9,948.7 $577.7 $169.5 $1.4 $23.5 $10,720.8 
(1)Equity, loan and other unfunded commitments are presented by contractual maturity date. The amounts, however, are available on demand.
(2)At February 28, 2021, $5,894.4 million within forward starting securities purchased under agreements to resell and $3,631.4 million within forward starting securities sold under agreements to repurchase settled within three business days.
Equity Commitments. Includes a commitment to invest in our joint venture, Jefferies Finance, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by one of our directors and Chairman of the Executive Committee. At February 28, 2021, our outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $10.8 million.
See Note 9, Investments, for additional information regarding our investments in Jefferies Finance.
Additionally, at February 28, 2021, we had other outstanding equity commitments to invest up to $200.0 million to strategic affiliates and up to $22.9 million to various other investments.
51

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication and acquisition finance, and to strategic affiliates. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At February 28, 2021, we had $80.0 million of outstanding loan commitments to clients and $5.9 million to strategic affiliates.
Loan commitments outstanding at February 28, 2021 also include our portion of the outstanding secured revolving credit facility provided to Jefferies Finance, to support loan underwritings by Jefferies Finance. See Note 9, Investments, for additional information.
Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting commitments to our clients in connection with capital raising transactions.
Forward Starting Reverse Repos and Repos. We enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.
Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.
Guarantees
Derivative Contracts. As a dealer, we make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under U.S. GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts.
The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under U.S. GAAP at February 28, 2021 (in millions):
Expected Maturity Date (Fiscal Years)
202120222023 
and 
2024
2025 
and 
2026
2027 
and 
Later
Notional/ Maximum Payout
Guarantee Type:
Derivative contracts—non-credit related$11,232.2 $2,940.1 $8,807.2 $394.1 $12.1 $23,385.7 
Written derivative contracts—credit related6.4 87.2 93.6 
Total derivative contracts$11,232.2 $2,940.1 $8,813.6 $481.3 $12.1 $23,479.3 
The derivative contracts deemed to meet the definition of a guarantee under U.S. GAAP are before consideration of hedging transactions and only reflect a partial or “one-sided” component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. At February 28, 2021, the fair value of derivative contracts meeting the definition of a guarantee is approximately $305.3 million.
Standby Letters of Credit. At February 28, 2021, we provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $20.4 million, all of which expire within one year. Standby letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement.
52

JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business, we provide guarantees to securities clearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements. Additionally, we provide certain indemnifications in connection with third-party clearing and execution arrangements whereby a third-party may clear and settle transactions on behalf of our clients. These indemnifications generally have standard contractual terms and are entered into in the ordinary course of business. Our obligations in respect of such transactions are secured by the assets in our client’s account, as well as any proceeds received from the transactions cleared and settled on behalf of our client. However, we believe that it is unlikely we would have to make any material payments under these arrangements and no material liabilities related to these indemnifications have been recognized.

Note 17. Net Capital Requirements
As a broker-dealer registered with the SEC and a member firm of the Financial Industry Regulatory Authority (“FINRA”), Jefferies LLC is subject to the SEC Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant (“FCM”), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.
At February 28, 2021, Jefferies LLC’s net capital and excess net capital were as follows (in thousands):
Net CapitalExcess Net Capital
Jefferies LLC$2,019,268 $1,902,913 
FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.
Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority in the United Kingdom (“U.K.”).
The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.

Note 18. Segment Reporting
We operate in 2 reportable business segments: (1) Investment Banking and Capital Markets and (2) Asset Management. The Investment Banking and Capital Markets reportable business segment includes our securities, commodities, futures and foreign exchange capital markets activities and investment banking business, which is composed of financial advisory and underwriting activities. The Investment Banking and Capital Markets reportable business segment provides the sales, trading, origination and advisory effort for various fixed income, equity and advisory products and services. The Asset Management reportable business segment provides investment management services to investors in the U.S. and overseas and invests capital in hedge funds, separately managed accounts and third-party asset managers.
Our reportable business segment information is prepared using the following methodologies:
Net revenues and non-interest expenses directly associated with each reportable business segment are included in determining earnings (loss) before income taxes.
Net revenues and non-interest expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization.
Our net revenues, non-interest expenses and earnings (loss) before income taxes by reportable business segment are summarized below (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Investment Banking and Capital Markets:
Net revenues$1,959.5 $1,148.8 
Non-interest expenses1,416.2 898.9 
Earnings before income taxes$543.3 $249.9 
Asset Management:
Net revenues$169.9 $21.9 
Non-interest expenses42.0 36.4 
Earnings (loss) before income taxes$127.9 $(14.5)
Total:
Net revenues$2,129.4 $1,170.7 
Non-interest expenses1,458.2 935.3 
Earnings before income taxes$671.2 $235.4 
The following table summarizes our total assets by reportable business segment (in millions):
February 28, 2021November 30, 2020
Investment Banking and Capital Markets$48,694.6 $44,488.1 
Asset Management2,691.8 3,263.9 
Total assets$51,386.4 $47,752.0 
Net Revenues by Geographic Region
Net revenues for the Investment Banking and Capital Markets reportable business segment are recorded in the geographic region in which the position was risk-managed or, in the case of investment banking, in which the senior coverage banker is located. For the Asset Management reportable business segment, net revenues are allocated according to the location of the investment advisor. Net revenues by geographic region were as follows (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Americas (1)$1,750.6 $950.1 
Europe (2)298.8 159.3 
Asia Pacific80.0 61.3 
Net revenues$2,129.4 $1,170.7 
(1)Substantially all relates to U.S. results.
(2)Substantially all relates to U.K. results.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Note 19. Related Party Transactions
Officers, Directors and Employees. The following sets forth information regarding related party transactions with our officers, directors and employees:
At February 28, 2021 and November 30, 2020, we had $27.7 million and $28.9 million, respectively, of loans outstanding to certain of our officers and employees (none of whom are executive officers or directors) that are included in Other assets in our Consolidated Statements of Financial Condition.
Receivables from and payables to customers include balances arising from officers’, directors’ and employees’ individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms.
One of our directors had an investment in a hedge fund managed by us of approximately $0.8 million at November 30, 2020. This investment was fully redeemed in February 2021.
See Note 8, Variable Interest Entities, and Note 16, Commitments, Contingencies and Guarantees, for further information regarding related party transactions with our officers, directors and employees.
Jefferies. The following is a description of our related party transactions with Jefferies and its affiliates:
We provide services to and receive services from Jefferies under service agreements (in millions):
Three Months Ended
February 28,
2021
February 29,
2020
Charges to Jefferies for services provided$15.6 $10.4 
Charges from Jefferies for services received9.9 8.0 
We also provide investment banking and capital markets and asset management services to Jefferies and its affiliates. The following table presents the revenues earned by type of services provided (in millions):
Three Months Ended
February 28,
2021
February 29,
2020
Investment banking$13.6 $
Commissions and other fees0.3 0.3 
Receivables from and payables to Jefferies, included in Other assets and Accrued expenses and other liabilities, respectively, in our Consolidated Statements of Financial Condition (in millions):
February 28, 2021November 30, 2020
Receivable from Jefferies$4.0 $1.3 
Payable to Jefferies3.2 7.1 
During the three months ended February 28, 2021, we paid distributions of $153.6 million to Jefferies, based on our results for the three months ended November 30, 2020. In addition, during the three months ended February 28, 2021, we received a contribution of $153.6 million from Jefferies and paid an additional distribution of $153.6 million to Jefferies. At February 28, 2021, we have accrued a distribution payable of $247.0 million, based on our results for the three months ended February 28, 2021.
Pursuant to a tax sharing agreement entered into between us and Jefferies, payments are made between us and Jefferies to settle current tax receivables and payables. At February 28, 2021 and November 30, 2020, we had net current tax payables to Jefferies of $244.2 million and $111.1 million, respectively, included in Accrued expenses and other liabilities, in our Consolidated Statements of Financial Condition. Subsequent to quarter-end, in March 2021, we made payments totaling $175.0 million to Jefferies, which reduced the cumulative net current tax payable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
We purchase securities from and sell securities to Jefferies, at fair value (in millions). There were 0 gains or losses on these transactions.
Three Months Ended
February 28,
2021
February 29,
2020
Securities purchased from Jefferies$9.1 $26.1 
Securities sold to Jefferies0.5 
At February 28, 2021 and November 30, 2020, we have customer account payables to entities of Jefferies totaling $1.1 million and $2.2 million, respectively, included in Payables—customers, in our Consolidated Statements of Financial Condition.
In connection with foreign exchange contracts entered into under a prime brokerage agreement with an affiliate of Jefferies, we have $0.1 million and $2.7 million at February 28, 2021 and November 30, 2020, respectively, included in Payables— brokers, dealers and clearing organizations, in our Consolidated Statements of Financial Condition.
We enter into OTC foreign exchange contracts with a subsidiary of Jefferies. In connection with these contracts, we had $0.1 million recorded in Financial instruments owned, at fair value, in our Consolidated Statements of Financial Condition at November 30, 2020. Net gains (losses) relating to these contracts, which are included in Principal transactions revenues in our Consolidated Statements of Earnings, are as follows (in millions):
Three Months Ended
February 28,
2021
February 29,
2020
Net gains (losses) on foreign exchange contracts$0.1 $(0.6)
We had investments in a hedge fund managed by Jefferies of $239.0 million at November 30, 2020, included in Financial instruments owned, at fair value, in our Consolidated Statement of Financial Condition. In January 2021, Jefferies transferred one of its asset management divisions, the investment manager of this fund, to us, in return for a payment of $2.2 million. Net gains on our investments in this hedge fund for the three months ended February 29, 2020, were $3.8 million, which were included in Principal transactions revenues in our Consolidated Statement of Earnings.
In connection with our capital markets activities, from time to time we make a market in long-term debt securities of Jefferies (i.e., we buy and sell debt securities issued by Jefferies). At February 28, 2021 and November 30, 2020, approximately $0.2 million and $2.6 million, respectively, of debt issued by Jefferies is included in Financial instruments owned, at fair value, and at February 28, 2021, $0.1 million is included in Financial instruments sold, not yet purchased, at fair value, in our Consolidated Statements of Financial Condition.
For the three months ended February 28, 2021, we recorded asset management expenses of $0.5 million, which are included in Floor brokerage and clearing fees in our Consolidated Statement of Earnings, relating to an investment in a separately managed account, which is managed by a strategic affiliate.
We have entered into a sublease agreement with an affiliate of Jefferies for office space. For both the three months ended February 28, 2021 and February 29, 2020, we received payments from this affiliate for rent and other expenses of $0.2 million.
For information on transactions with our equity method investees, see Note 9, Investments.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report contains or incorporates by reference “forward looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements about our future and statements that are not historical facts. These forward looking statements are usually preceded by the words “believe,” “intend,” “may,” “will,” or similar expressions. Forward looking statements may contain expectations regarding revenues, earnings, operations and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future development of our business and products. Forward looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward looking statements is contained in this report and other documents we file. You should read and interpret any forward looking statement together with these documents, including the following:
the description of our business and risk factors contained in our Annual Report on Form 10-K for the year ended November 30, 2020 and filed with the Securities and Exchange Commission (“SEC”) on January 29, 2021;
the discussion of our analysis of financial condition and results of operations contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein;
the discussion of our risk management policies, procedures and methodologies contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” herein;
the notes to the consolidated financial statements contained in this report; and
cautionary statements we make in our public documents, reports and announcements.
Any forward looking statement speaks only as of the date on which that statement is made. We will not update any forward looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.
Our business, by its nature, does not produce predictable or necessarily recurring earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally and our own activities and positions. For a further discussion of the factors that may affect our future operating results, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended November 30, 2020.

Consolidated Results of Operations
Overview
The following table provides an overview of our consolidated results of operations (dollars in thousands):
Three Months Ended % Change
February 28, 2021February 29, 2020
Net revenues$2,129,366 $1,170,696 81.9 %
Non-interest expenses1,458,196 935,318 55.9 %
Earnings before income taxes671,170 235,378 185.1 %
Income tax expense177,305 64,013 177.0 %
Net earnings493,865 171,365 188.2 %
Net loss attributable to noncontrolling interests(203)(2,024)(90.0)%
Net earnings attributable to Jefferies Group LLC494,068 173,389 184.9 %
Effective tax rate26.4 %27.2 %


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Executive Summary
Three Months Ended February 28, 2021
Consolidated Results
Net revenues for the three months ended February 28, 2021 were an all-time quarterly record of $2.13 billion, up 81.9% compared with $1.17 billion for the three months ended February 29, 2020, which was then an all-time quarterly record.
Our first quarter results reflect record net revenues in investment banking, equities and asset management, as well as solid results in fixed income.
Our investment banking results reflect our increased market share, including record net revenues in equity underwriting, and solid performance in investment banking advisory and debt underwriting.
Our record equity and solid fixed income net revenues were primarily due to higher market volumes, a favorable trading backdrop and increased market share, as the momentum in market share gains we experienced in 2020 continued.
Business Results
Our investment banking net revenues of $1.03 billion for the three months ended February 28, 2021 were an increase of 79.0% from the prior year comparable quarter, reflecting record underwriting revenues of $692.2 million, up $443.4 million, or 178.2%, over the prior year comparable quarter, while our advisory revenues remained strong at $311.4 million. 
Our investment banking results also include net revenues of $30.6 million from our share of the net earnings of our Jefferies Finance LLC (“Jefferies Finance”) joint venture, compared with net revenues of $10.4 million in the prior year comparable quarter, reflecting an increase in loan arrangement volumes, as well as a reduction in loan loss reserves.
Our equities net revenues increased 116.2% compared to the prior year comparable quarter, driven by all-time record results in almost all our businesses and across each of our core regions. Our equities business benefited significantly from the trading environment and the continued expansion of our businesses both from a product and geographic perspective.
Our fixed income net revenues were up 46.4% compared to the prior year comparable quarter, driven by continued strong client activity across most products and regions.
Our asset management net revenues of $169.9 million for the three months ended February 28, 2021, were significantly higher than the $21.9 million recorded in the prior year comparable quarter, driven by meaningfully higher investment returns across most platforms and a substantial increase in asset management fees and revenues. Results in the current year quarter include $37.4 million in management and performance fees and similar revenues earned directly or through our strategic affiliates in the current year quarter, as compared with $11.7 million in the prior year comparable quarter. Performance fees and similar revenues are generally realized and recognized once a year in the first quarter of our fiscal year and are attributable to performance realized in respect of the calendar year ending during our first fiscal quarter.
Net revenues in our other business category in the three months ended February 28, 2021 were $31.6 million, compared with net revenues of $77.5 million in the prior year comparable quarter. The results in the prior year comparable quarter included gains of $61.5 million from macro hedges that were bought and sold in the prior year comparable quarter at the onset of the coronavirus (“COVID-19”) pandemic. Results in the current year quarter include higher net revenues of $30.0 million from our share of the net income from Berkadia Commercial Mortgage Holding LLC (“Berkadia”), compared with $21.9 million in the prior year comparable quarter.
Expenses
Non-interest expenses for the three months ended February 28, 2021 increased $522.9 million, or 55.9%, to $1.46 billion, compared with $935.3 million for the prior year comparable quarter. This 55.9% increase, which is primarily due to higher compensation and benefits expense, is meaningfully lower than our 81.9% increase in net revenues, demonstrating the operating leverage inherent in our business model. As a result, our pre-tax operating margin increased to 31.5% in the current year quarter from 20.1% in the prior year comparable quarter.
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Compensation and benefits expense for the three months ended February 28, 2021 was $1.12 billion, an increase of $484.7 million, or 76.3%, from the prior year comparable quarter, modestly below the 81.9% growth in our net revenues. Compensation and benefits expense as a percentage of Net revenues was 52.6% for the three months ended February 28, 2021, compared with 54.3%, in the prior year comparable quarter.
Non-compensation expenses for the three months ended February 28, 2021 increased $38.2 million to $338.3 million, compared with $300.1 million for the prior year comparable quarter. This 12.7% increase is again meaningfully lower than our 81.9% increase in net revenues, as a meaningful portion of our non-compensation expenses are fixed in nature. The modest absolute increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to an increase in trading volumes and higher Underwriting costs due to an increase in the volume of investment banking transactions. These increases correspond with our record equities net revenues, strong fixed income net revenues and record investment banking net revenues. The increase was also due to higher Technology and communication expenses, partially offset by meaningfully lower Business development expenses as business travel and events remained substantially curtailed due to COVID-19.
Headcount
At February 28, 2021, we had 3,984 employees globally, an increase of 162 employees from our headcount of 3,822 at February 29, 2020. Our headcount increased primarily in the Americas and Europe as a result of continued investment to support and drive the growth of our investment banking and equities businesses, as well as additions in corporate services to support our growth. The increase was partially offset by reductions in our asset management business due to the wind down of an asset management platform.

Revenues by Source
For presentation purposes, the remainder of “Consolidated Results of Operations” is presented on a detailed product and expense basis, rather than on a business segment basis. Net revenues presented for our Investment Banking and Capital Markets businesses include allocations of interest income and interest expense as we assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, including the net interest cost of allocated long-term debt, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs.
The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary from period to period due to fluctuations in economic and market conditions, and our own performance. The following provides a summary of “Net Revenues by Source” (dollars in thousands):
Three Months Ended
February 28, 2021February 29, 2020
Amount% of Net RevenuesAmount% of Net Revenues% Change
Advisory$311,439 14.6 %$343,158 29.3 %(9.2)%
Equity underwriting494,806 23.2 131,692 11.2 275.7 %
Debt underwriting197,417 9.3 117,152 10.0 68.5 %
Total underwriting692,223 32.5 248,844 21.2 178.2 %
Other investment banking29,825 1.4 (14,529)(1.2)N/M
Total investment banking1,033,487 48.5 577,473 49.3 79.0 %
Equities531,016 24.9 245,641 21.0 116.2 %
Fixed income363,359 17.1 248,182 21.2 46.4 %
Total capital markets894,375 42.0 493,823 42.2 81.1 %
Other31,647 1.5 77,533 6.6 (59.2)%
Total Investment Banking and Capital Markets (1) (2)1,959,509 92.0 1,148,829 98.1 70.6 %
Asset management fees and revenues37,383 1.8 11,720 1.0 219.0 %
Investment return (3) (4)142,873 6.7 20,839 1.8 585.6 %
Allocated net interest (3) (5)(10,399)(0.5)(10,692)(0.9)(2.7)%
Total Asset Management169,857 8.0 21,867 1.9 676.8 %
Net revenues$2,129,366 100.0 %$1,170,696 100.0 %81.9 %
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N/M — Not Meaningful
(1)Includes net interest revenues of $12.2 million and $2.9 million for the three months ended February 28, 2021 and February 29, 2020, respectively.
(2)Allocated net interest is not separately disaggregated for Investment Banking and Capital Markets. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
(3)Net revenues attributed to the Investment return in Asset Management have been disaggregated to separately present Investment return and Allocated net interest (see footnote 5 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods.
(4)Includes direct net interest expenses of $2.3 million and $6.4 million for the three months ended February 28, 2021 and February 29, 2020, respectively.
(5)Allocated net interest represents the allocation of our long-term debt interest expense to Asset Management, net of interest income on our Cash and cash equivalents and other sources of liquidity.
Investment Banking Revenues
Investment banking is comprised of revenues from:
advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;
underwriting services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage-backed and asset-backed securities and equity and equity-linked securities and loan syndication;
our 50% share of net earnings from our corporate lending joint venture, Jefferies Finance; and
securities and loans received or acquired in connection with our investment banking activities.
The following table sets forth our investment banking revenues (dollars in thousands):
Three Months Ended% Change
February 28, 2021February 29, 2020
Advisory$311,439 $343,158 (9.2)%
Equity underwriting494,806 131,692 275.7 %
Debt underwriting197,417 117,152 68.5 %
Total underwriting692,223 248,844 178.2 %
Other investment banking29,825 (14,529)N/M
Total investment banking$1,033,487 $577,473 79.0 %
N/M — Not Meaningful
The following table sets forth our investment banking activities (dollars in billions):
Deals CompletedAggregate Value
Three Months EndedThree Months Ended
February 28, 2021February 29, 2020February 28, 2021February 29, 2020
Advisory transactions65 66 $82.2 $57.7 
Public and private debt financings163 152 76.7 69.6 
Public and private equity and convertible offerings116 56 43.8 11.8 
Three Months Ended February 28, 2021
Investment banking revenues for the three months ended February 28, 2021 were a record of $1.03 billion, compared with $577.5 million for the three months ended February 29, 2020, reflecting record revenues in equity underwriting and solid performance in debt underwriting and slightly lower revenues in mergers and acquisitions.
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Our underwriting revenues for the three months ended February 28, 2021 were a record $692.2 million, an increase of 178.2% from $248.8 million in the prior year comparable quarter, with record quarterly net revenues in equity underwriting of $494.8 million and solid net revenues of $197.4 million in debt underwriting, as clients took advantage of the strong equity environment to raise equity capital in almost all sectors and companies continued to take advantage of the low rate environment to access the debt capital markets. In addition, our equity underwriting results in the current year quarter include revenues of $129.2 million generated from our underwriting activities on 22 Special Purpose Acquisition Companies (“SPACs”) offerings and other SPAC-related transactions. Our advisory revenues were $311.4 million, a decrease of $31.8 million, or 9.2%, from the prior year comparable quarter.
Other investment banking revenues were $29.8 million for the three months ended February 28, 2021, compared with a loss of $14.5 million for the three months ended February 29, 2020. Other investment banking revenues during the three months ended February 28, 2021 include net revenues of $30.6 million from our share of the net earnings of our Jefferies Finance joint venture, compared with net revenues of $10.4 million in the prior year comparable quarter. This is reflective of an increase in committed loan arrangement volumes during the current year quarter. Additionally, the results during the three months ended February 29, 2020, included a higher level of reserves recorded on the loan portfolio and unrealized losses related to the write-down of certain equity investments due to the impact of COVID-19 on the markets and the economy, as compared with minimal portfolio reserves and mark-to-market activity on equity investments in the current year quarter. The prior year comparable quarter also included unrealized write-downs of private equity investments received or acquired in connection with our investment banking activities. Our Other investment banking revenues are reduced by allocated interest expense and the amortization of costs related to our investment in the Jefferies Finance business.
Equities Net Revenues
Equities is comprised of net revenues from:
services provided to our clients from which we earn commissions or spread revenue by executing, settling and clearing transactions for clients;
advisory services offered to clients;
financing, securities lending and other prime brokerage services offered to clients, including capital intelligence and outsourced trading; and
wealth management services.
Three Months Ended February 28, 2021
Total equities net revenues were $531.0 million for the three months ended February 28, 2021, an increase of 116.2%, compared with $245.6 million for the prior year comparable quarter, driven by all-time record results in predominately all our equities businesses and across each of our core regions. Our equities franchise benefited significantly from the favorable trading environment and SPAC-related activity in the U.S.
In the last several months, we received recognition from leading third-party market surveys - Our international convertibles franchise was ranked 1st in both European and Asian, excluding Japan, convertibles by Greenwich Associates. Bloomberg ranked our electronic trading platform as 2nd in the U.S. Hedgeweek named us as the Best U.S. Prime Broker and we doubled the number of analysts ranked in the Japanese Institutional Investor survey.
Our global cash equities business had record net revenues, primarily driven by meaningfully higher trading revenue, with strong client activity and market volumes. Our electronic trading businesses in Europe and Asia achieved record results, while our U.S. electronic trading business delivered strong results, all driven by increased global market volumes and new client activity. Record results in our global convertibles franchise were driven by increased client activity and higher trading revenues on the back of a significant increase in new issuance in this market. Our prime services franchise, consisting of prime brokerage and securities finance, recorded record results driven by increased client balances and customer trading activity, and the addition of new clients in our outsourced trading business. Our equity derivatives business had record quarterly results driven by a higher volatility trading environment and an increase in client activity.
Fixed Income Net Revenues
Fixed income is comprised of net revenues from:
executing transactions for clients and making markets in securitized products, investment grade, high-yield, distressed, emerging markets, municipal and sovereign securities and bank loans, as well as foreign exchange execution on behalf of clients;
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interest rate derivatives and credit derivatives; and
financing services offered to clients.
Three Months Ended February 28, 2021
Fixed income net revenues totaled $363.4 million for the three months ended February 28, 2021, an increase of 46.4% from net revenues of $248.2 million for the three months ended February 29, 2020, driven by continued strong client activity across most products and geographies, and our ongoing investments to grow our business, particularly in Europe.
Net revenues in the current year quarter were higher in our U.S. and international securitized markets groups due to increased demand in the securitization markets for most of these product classes, as compared with the prior year comparable quarter, as the relative higher yields on securitized products drove investor demand in the current year quarter. Our revenues also benefited from our expansion in European collateralized loan obligations (“CLOs”) origination and trading.
Strong results across our global credit franchise resulted from robust revenues across regions and products due to increased client activity and higher levels of volatility in the current year quarter, as well as continued tightening of already record low credit spreads throughout most of the quarter and a strong issuance calendar. We have also made strategic hires in our European credit franchise which contributed to our revenue growth.
The record results were partially offset by lower revenues in our U.S. rates business due to a decline in trading opportunities, which was impacted by volatile Treasury yields during the current year quarter.
Other
Other is comprised of revenues from:
Berkadia and other investments (other than Jefferies Finance, which is included in Other investment banking);
principal investments in private equity and hedge funds managed by third-parties or related parties and are not part of our Leucadia Asset Management platform; and
investments held as part of employee benefit plans, including deferred compensation plans (for which we incur an equal and offsetting amount of compensation expense).
Three Months Ended February 28, 2021
Our other net revenues totaled $31.6 million for the three months ended February 28, 2021, a decrease of $45.9 million compared with net revenues of $77.5 million for the three months ended February 29, 2020.
The results in the prior year comparable quarter included gains of $61.5 million from macro hedges that were bought and sold in the prior year comparable quarter at the onset of the COVID-19 pandemic.
Results in the current year quarter include net revenues of $30.0 million due to our share of the net income of Berkadia compared with $21.9 million in the prior year comparable quarter.
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JEFFERIES GROUP LLC AND SUBSIDIARIES
Asset Management
Our asset management business is a diversified alternative asset management platform offering institutional clients an innovative range of investment strategies through us and our affiliated asset managers. We provide certain of our affiliated asset managers access to fully integrated global operational infrastructure and support. This may include strategy and product development, daily operations and finance-related activities, compliance, legal and human resources support, as well as all aspects of business development.
Asset management revenue includes the following:
management and performance fees from funds and accounts managed by us;
revenue from affiliated asset managers in which we hold interests that entitle us to portions of their revenues and/or profits; and
investment income from capital invested in and managed by us, Jefferies and our affiliated asset managers.
The key components of asset management revenues are the level of assets under management and the performance return, for the most part on an absolute basis, and, in certain cases, relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets. Performance fees and similar revenues are generally recognized once a year, typically in December, when they become fixed and determinable and are not probable of being significantly reversed. As a result, performance fees and similar revenues are generally realized and recognized in the first quarter of our fiscal year.
The following summarizes the results of our Asset Management businesses by asset class (dollars in thousands):
Three Months Ended% Change
February 28, 2021February 29, 2020
Asset management fees:
Equities$4,999 $2,874 73.9 %
Multi-asset1,914 1,530 25.1 %
Total asset management fees6,913 4,404 57.0 %
Revenue from strategic affiliates (1)30,470 7,316 316.5 %
Total asset management fees and revenues37,383 11,720 219.0 %
Investment return142,873 20,839 585.6 %
Allocated net interest(10,399)(10,692)(2.7)%
Total Asset Management$169,857 $21,867 676.8 %
(1)These amounts include our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements.
Three Months Ended February 28, 2021
Asset management net revenues in the three months ended February 28, 2021 were a record $169.9 million, significantly higher than the $21.9 million recorded in the prior year comparable quarter, driven by meaningfully higher investment returns across most platforms and a substantial increase in asset management fees and revenues. Results in the current year quarter include $37.4 million in management and performance fees and similar revenues earned directly or through our strategic affiliates in the current year quarter, as compared with $11.7 million in the prior year comparable quarter. Performance fees and similar revenues are generally realized and recognized once a year in the first quarter of our fiscal year and are attributable to performance realized in respect of the calendar year ending during our first fiscal quarter.
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Assets under Management
The tables below include only third-party assets under management by us, excluding those of our affiliated asset managers.
Period-end assets under management by predominant asset class were as follows (in millions):
February 28, 2021November 30, 2020
Assets under management (1):
Equities$418 $481 
Multi-asset355 173 
Total$773 $654 
(1)Assets under management include third-party net assets actively managed by us, including hedge funds and certain managed accounts. We may consolidate certain funds and for such consolidated funds, assets under management includes the pro-rata portion of third-party net assets in consolidated funds based on the percentage ownership of third-party investors in the consolidated fund. The above amounts do not include assets under management at non-consolidated strategic partners or investments or Jefferies Financial Group Inc. (“Jefferies”).
Change in assets under management were as follows (in millions):
Three Months Ended
February 28, 2021February 29, 2020
Asset under management:
Balance, beginning of period$654 $840 
Net cash flows in97 139 
Net market appreciation (depreciation)22 (55)
Balance, end of period$773 $924 
The increase in assets under management in our wholly-owned managers during the three months ended February 28, 2021 is primarily due to the transfer of third-party net assets from Jefferies to us, as well as market appreciation. The increase in assets under management during the three months ended February 29, 2020 is primarily due to new subscriptions and investments from third-parties, partially offset by market depreciation.
Our definition of assets under management is not based on any definition contained in any of our investment management agreements and differs from the manner in which “Regulatory Assets Under Management” is reported to the SEC on Form ADV.
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Asset Management Investments
In connection with building our business and growing the revenues we participate in via our affiliated managers, our asset management business makes seed and additional strategic investments directly in alternative asset management separately managed accounts and co-mingled funds where we or our Parent act as the asset manager or in affiliated asset managers where we have strategic relationships and participate in the earnings or profits of the affiliated manager. Our asset management investments generated an investment return of $142.9 million and $20.8 million for the three months ended February 28, 2021 and February 29, 2020, respectively. The following table represents our investments by asset manager (in thousands):
February 28, 2021November 30, 2020
Jefferies Group LLC; as manager:
Fund investments (1)(2)$312,051 $25,292 
Separately managed accounts (3)271,943 342,443 
Total$583,994 $367,735 
Jefferies Financial Group Inc.; as manager:
Fund investments (2)$— $233,601 
Total$— $233,601 
Strategic affiliates; as asset manager:
Fund investments$665,463 $641,185 
Separately managed accounts (3)239,961 261,273 
Total$905,424 $902,458 
Total asset management investments$1,489,418 $1,503,794 
(1)Due to the level or nature of an investment in a fund, we may consolidate that fund; and accordingly, the assets and liabilities of the fund are included in the representative line items in our consolidated financial statements. At February 28, 2021 and November 30, 2020, $20.3 million and $0.1 million, respectively, represents net investments in funds that have been consolidated in our financial statements.
(2)In the three months ended February 28, 2021, certain fund investments that Jefferies Financial Group Inc. had acted as the manager for were transferred to us as the manager.
(3)Where we have investments in a separately managed account, the assets and liabilities of such account are presented in our consolidated financial statements within each respective line item.
We and our affiliated asset managers (including our Jefferies Finance joint venture) have aggregate net asset values or net asset value equivalent assets under management of approximately $22.4 billion and $21.0 billion at February 28, 2021 and November 30, 2020, respectively. Net asset values or net asset value equivalent assets under management are comprised of the fair value of the net assets of a fund, the net capital invested in a separately managed account or the par value of collateralized loan obligations. These include the following:
Net asset values of investments made by us or by Jefferies in funds or separately managed accounts were $2.4 billion (February 28, 2021) and $2.6 billion (November 30, 2020). We incubate certain strategies using our own capital during the institutional buildout phase before opening investments to outside capital. The net asset values include our seed capital of $1.5 billion (February 28, 2021) and $1.5 billion (November 30, 2020) plus amounts financed of $0.9 billion (February 28, 2021) and $1.1 billion (November 30, 2020). Revenues related to the investments made by us are presented in Investment return within the results of our Asset Management businesses.
The assets under management by affiliated asset managers with whom we have an ongoing profit or revenue sharing arrangement were $7.6 billion (February 28, 2021) and $6.9 billion (November 30, 2020). In some instances, due to the timing of payments and crystallization of underlying profits or revenue, the majority of revenue related to these relationships will be realized and recognized once per year at the calendar year-end (during our first fiscal quarter). Revenues from our share of fees received by affiliated asset managers are presented in Revenue from strategic affiliates within the results of our Asset Management businesses.
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Third-party investments actively managed by our wholly-owned divisions were $0.8 billion (February 28, 2021) and $0.7 billion (November 30, 2020). We earn asset management fees as a result of the third-party investments, which are presented in Asset management fees and revenues within the results of our Asset Management businesses.
Asset management activities within Jefferies Finance, our joint venture with Massachusetts Mutual Life Insurance Company, were $11.6 billion (February 28, 2021) and $10.8 billion (November 30, 2020), which represent the aggregate par value of CLOs managed by Jefferies Finance, including those consolidated by Jefferies Finance. Although our asset management business provides advice and support, including marketing and sales, to Jefferies Finance, our management evaluates segment performance based on the inclusion of our share of the net earnings of our Jefferies Finance joint venture in our Investment Banking and Capital Markets reportable business segment. Those activities are therefore excluded from our Asset Management reportable business segment results. Revenues from our investment in Jefferies Finance are accounted for under the equity method and presented in Other revenues on the Consolidated Statement of Earnings.
Non-interest Expenses
Non-interest expenses were as follows (dollars in thousands):
Three Months Ended% Change
February 28, 2021February 29, 2020
Compensation and benefits$1,119,894 $635,230 76.3 %
Non-compensation expenses:
Floor brokerage and clearing fees76,580 60,580 26.4 %
Technology and communications104,341 89,184 17.0 %
Occupancy and equipment rental27,990 27,503 1.8 %
Business development17,981 29,957 (40.0)%
Professional services44,288 44,665 (0.8)%
Underwriting costs36,136 17,529 106.1 %
Other30,986 30,670 1.0 %
Total non-compensation expenses338,302 300,088 12.7 %
Total non-interest expenses$1,458,196 $935,318 55.9 %
Compensation and Benefits
Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation and share-based awards and the amortization of share-based and cash compensation awards to employees.
Cash and share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded during the year of the award. Compensation and benefits expense includes amortization expense associated with these awards to the extent vesting is contingent on future service. In addition, the senior executive awards contain market and performance conditions and the awards are amortized over their service periods.
Compensation and benefits expense was $1.12 billion for the three months ended February 28, 2021, compared with $635.2 million for the three months ended February 29, 2020, increasing in line with the significant increase in our net revenues. A significant portion of our compensation expense is highly variable with net revenues.
Compensation and benefits expense as a percentage of Net revenues was 52.6% for the three months ended February 28, 2021, compared with 54.3% for the three months ended February 29, 2020.
Compensation expense related to the amortization of share- and cash-based awards amounted to $42.1 million for the three months ended February 28, 2021, compared with $83.8 million for the three months ended February 29, 2020. The decrease is primarily a result of the accelerated amortization recognized in the year ended November 30, 2020 of certain cash-based awards that had been granted during previous years, which were amended to remove any service requirements for vesting in the awards.
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Employee headcount was 3,984 at February 28, 2021, an increase of 162 employees from our headcount of 3,822 at February 29, 2020. Our headcount increased primarily in the Americas and Europe as a result of continued investment to support and drive the growth of our investment banking and equities businesses, as well as additions in corporate services to support our growth. The increase was partially offset by reductions in our asset management business due to the wind down of an asset management platform.
Refer to Note 14, Compensation Plans, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on compensation and benefits.
Non-Compensation Expenses
Three Months Ended February 28, 2021
Non-compensation expenses were $338.3 million for the three months ended February 28, 2021, an increase of $38.2 million, or 12.7%, compared with $300.1 million in the three months ended February 29, 2020.
The modest absolute increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to record net revenues in equities and strong net revenues in fixed income resulting from an increase in trading volumes and growth in certain asset management funds and resultant trading activity. The increase was also due to higher Underwriting costs, primarily due to record investment banking net revenues resulting from an increase in the volume of investment banking transactions and higher Technology and communication expenses, primarily related to costs associated with the development of various trading systems and increased market data costs.
Non-compensation expenses in the current year quarter also included our charitable donations of $7.7 million to approximately 130 charities around our planet that promote diversity and inclusion, support COVID-19 relief efforts, help Texas relief and support, protect and sustain our environment and strive to help humanity in other meaningful ways. The prior year comparable quarter included our $2.4 million donation made to various charities in support of the Australian wildfire relief effort.
The increase in non-compensation expenses was partially offset by meaningfully lower Business development expenses as business travel and events remained substantially curtailed due to COVID-19.
Non-compensation expenses as a percentage of Net revenues was 15.9% and 25.6% for the three months ended February 28, 2021 and February 29, 2020, respectively, demonstrating the operating leverage inherent in our business.
Income Taxes
For the three months ended February 28, 2021, the provision for income taxes was $177.3 million, equating to an effective tax rate of 26.4%. For the three months ended February 29, 2020, the provision for income taxes was $64.0 million, equating to an effective tax rate of 27.2%.
The decrease in the effective tax rate for the three months ended February 28, 2021, as compared to the prior year comparable quarter, is primarily due to our substantially higher earnings before income taxes minimizing the impact of nondeductible expenses.
Refer to Note 15, Income Taxes, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on income taxes.
Accounting Developments
For a discussion of recently issued accounting developments and their impact on our consolidated financial statements, see Note 3, Accounting Developments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. Actual results can and may differ from estimates. These differences could be material to our consolidated financial statements.
We believe our application of U.S. GAAP and the associated estimates are reasonable. Our accounting estimates are reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
We believe our critical accounting policies (policies that are both material to the financial condition and results of operations and require our most subjective or complex judgments) are our valuation of certain financial instruments and assessment of goodwill.
For further discussions of the following significant accounting policies and other significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020.
Valuation of Financial Instruments
Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Unrealized gains or losses are generally recognized in Principal transactions revenues in our Consolidated Statements of Earnings.
For information on the composition of our Financial instruments owned and Financial instruments sold, not yet purchased recorded at fair value, see Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Fair Value Hierarchy – In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs, where Level 1 uses observable prices in active markets and Level 3 uses valuation techniques that incorporate significant unobservable inputs. Greater use of management judgment is required in determining fair value when inputs are less observable or unobservable in the marketplace, such as when the volume or level of trading activity for a financial instrument has decreased and when certain factors suggest that observed transactions may not be reflective of orderly market transactions. Judgment must be applied in determining the appropriateness of available prices, particularly in assessing whether available data reflects current prices and/or reflects the results of recent market transactions. Prices or quotes are weighed when estimating fair value with greater reliability placed on information from transactions that are considered to be representative of orderly market transactions.
Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. The valuation of financial instruments categorized within Level 3 of the fair value hierarchy involves the greatest extent of management judgment. (See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020 and Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q for further information on the definitions of fair value, Level 1, Level 2 and Level 3 and related valuation techniques.)
Level 3 Assets and Liabilities – For information on the composition and activity of our Level 3 assets and Level 3 liabilities, see Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
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Controls Over the Valuation Process for Financial Instruments – Our Independent Price Verification Group, independent of the trading function, plays an important role in determining that our financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model’s theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.
Goodwill
At February 28, 2021, Goodwill recorded in our Consolidated Statement of Financial Condition is $1,650.6 million (3.2% of total assets). The nature and accounting for goodwill is discussed in Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020 and Note 10, Goodwill and Intangible Assets, in our consolidated financial statements included in this Quarterly Report on Form 10-Q. Goodwill must be allocated to reporting units and tested for impairment at least annually, or when circumstances or events make it more likely than not that an impairment occurred. Goodwill is tested by comparing the estimated fair value of each reporting unit with its carrying value. Our annual goodwill impairment testing date is August 1, which did not indicate any goodwill impairment in any of our reporting units at August 1, 2020.
We use allocated tangible equity plus allocated goodwill and intangible assets for the carrying amount of each reporting unit. The amount of tangible equity allocated to a reporting unit is based on our cash capital model deployed in managing our businesses, which seeks to approximate the capital a business would require if it were operating independently. For further information on our Cash Capital Policy, refer to the Liquidity, Financial Condition and Capital Resources section herein. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit’s benefit from the intangible asset in order to generate results.
Estimating the fair value of a reporting unit requires management judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Estimated fair values for our reporting units utilize market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable public companies. Under the market valuation approach, the key assumptions are the selected multiples and our internally developed projections of future profitability, growth and return on equity for each reporting unit. The weight assigned to the multiples requires judgment in qualitatively and quantitatively evaluating the size, profitability and the nature of the business activities of the reporting units as compared to the comparable publicly-traded companies. In addition, as the fair values determined under the market valuation approach represent a noncontrolling interest, we apply a control premium to arrive at the estimate fair value of each reporting unit on a controlling basis.
The carrying values of goodwill by reporting unit at February 28, 2021 are as follows: $567.5 million in Investment Banking, $161.2 million in Equities and Wealth Management, $921.5 million in Fixed Income and $0.4 million in Asset Management.
The results of our assessment on August 1, 2020 indicated that all our reporting units had a fair value in excess of their carrying amounts based on current projections. The valuation methodology for our reporting units are sensitive to management’s forecasts of future profitability, which are a significant component of the valuation and come with a level of uncertainty regarding trading volumes and capital market transaction levels.
Refer to Note 10, Goodwill and Intangible Assets, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on goodwill.

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Liquidity, Financial Condition and Capital Resources
Our CFO and Global Treasurer are responsible for developing and implementing our liquidity, funding and capital management strategies. These policies are determined by the nature and needs of our day to day business operations, business opportunities, regulatory obligations, and liquidity requirements.
Our actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long term and short term funding. We have historically maintained a balance sheet consisting of a large portion of our total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides us with flexibility in financing and managing our business.
We maintain modest leverage to support our investment grade ratings. The growth of our balance sheet is supported by our equity and we have quantitative metrics in place to monitor leverage and double leverage. Our capital plan is robust, in order to sustain our operating model through stressed conditions. We maintain adequate financial resources to support business activities in both normal and stressed market conditions, including a buffer in excess of our regulatory, or other internal or external, requirements. Our access to funding and liquidity is stable and efficient to ensure that there is sufficient liquidity to meet our financial obligations in normal and stressed market conditions.
Our Balance Sheet
A business unit level balance sheet and cash capital analysis are prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross balance sheet limits are adjusted, as necessary. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect the firm’s platform, enable our businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.
We actively monitor and evaluate our financial condition and the composition of our assets and liabilities. We continually monitor our overall securities inventory, including the inventory turnover rate, which confirms the liquidity of our overall assets. Substantially all of our financial instruments are valued on a daily basis and we monitor and employ balance sheet limits for our various businesses.
The following table provides detail on selected balance sheet items (dollars in millions):
February 28,
2021
November 30,
2020
% Change
Total assets$51,386.4 $47,752.0 7.6 %
Cash and cash equivalents6,707.5 7,111.9 (5.7)%
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations615.1 604.3 1.8 %
Financial instruments owned18,570.9 17,686.1 5.0 %
Financial instruments sold, not yet purchased12,361.5 10,017.5 23.4 %
Total Level 3 assets364.9 379.1 (3.7)%
Securities borrowed$7,150.7 $6,934.8 3.1 %
Securities purchased under agreements to resell6,680.3 5,096.8 31.1 %
Total securities borrowed and securities purchased under agreements to resell$13,831.0 $12,031.6 15.0 %
Securities loaned$2,519.1 $1,810.7 39.1 %
Securities sold under agreements to repurchase7,207.6 8,316.3 (13.3)%
Total securities loaned and securities sold under agreements to repurchase$9,726.7 $10,127.0 (4.0)%
Total assets at February 28, 2021 and November 30, 2020 were $51.4 billion and $47.8 billion, respectively, an increase of 7.6%. During the three months ended February 28, 2021, average total assets were approximately 12.8% higher than total assets at February 28, 2021.
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Our total Financial instruments owned inventory was $18.6 billion at February 28, 2021, an increase of 5.0%, from $17.7 billion at November 30, 2020. During the three months ended February 28, 2021, our total Financial instruments owned inventory increased primarily due to an increase in loans and other receivables and corporate debt and equity securities, partially offset by decreases in government and federal agency obligations and municipal securities. Financial instruments sold, not yet purchased inventory was $12.4 billion at February 28, 2021, an increase of 23.4% from $10.0 billion at November 30, 2020, with the increase primarily driven by increases in sovereign obligations, corporate debt securities, loans and derivative contracts. Our overall net inventory position was $6.2 billion and $7.7 billion at February 28, 2021 and November 30, 2020, respectively, with the decrease primarily due to decreases in sovereign obligations, derivative contracts and government and federal agency securities, partially offset by an increase in corporate equity securities. Our Level 3 Financial instruments owned as a percentage of total Financial instruments owned was 2.0% and 2.1% at February 28, 2021 and November 30, 2020, respectively.
Securities financing assets and liabilities include financing for our financial instruments trading activity, matched book transactions and mortgage finance transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The aggregate outstanding balance of our securities borrowed and securities purchased under agreements to resell increased by 15.0% from November 30, 2020 to February 28, 2021, due to increases in our matched book transactions and firm financing of our inventory, partially offset by an increase in the netting benefit for our collateralized financing transactions. The outstanding balance of our securities loaned and securities sold under agreement to repurchase decreased by 4.0% from November 30, 2020 to February 28, 2021, due to decrease in the firm financing of our inventory and an increase in the netting benefit for our collateralized financing transactions, partially offset by an increase in our matched book transactions. Our average month end balance of total reverse repos and stock borrows during the three months ended February 28, 2021 was 33.4% higher than the February 28, 2021 balance. Our average month end balance of total repos and stock loans during the three months ended February 28, 2021 was 61.3% higher than the February 28, 2021 balance.
The following table presents our period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (dollars in millions):
Three Months Ended 
February 28,
2021
Year Ended 
November 30,
2020
Securities Purchased Under Agreements to Resell:
Period end$6,680 $5,097 
Month end average9,219 8,040 
Maximum month end12,321 12,061 
Securities Sold Under Agreements to Repurchase:
Period end$7,208 $8,316 
Month end average12,975 13,501 
Maximum month end19,207 18,979 
Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of our securities purchased under agreements to resell are influenced in any given period by our clients’ balances and our clients’ desires to execute collateralized financing arrangements via the repurchase market or via other financing products. Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider the fluctuations intraperiod to be typical for the repurchase market.
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Leverage Ratios
The following table presents total assets, total equity, total Jefferies Group LLC member’s equity and tangible Jefferies Group LLC member’s equity with the resulting leverage ratios (dollars in thousands):
February 28,
2021
November 30,
2020
Total assets$51,386,411 $47,751,997 
Total equity$6,555,631 $6,366,132 
Total Jefferies Group LLC member’s equity$6,539,918 $6,348,743 
Deduct:Goodwill and intangible assets(1,806,881)(1,805,376)
Tangible Jefferies Group LLC member’s equity$4,733,037 $4,543,367 
Leverage ratio (1)7.8 7.5 
Tangible gross leverage ratio (2)10.5 10.1 
(1)Leverage ratio equals total assets divided by total equity.
(2)Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member’s equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
Liquidity Management
The key objectives of the liquidity management framework are to support the successful execution of our business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. Our liquidity management policies are designed to mitigate the potential risk that we may be unable to access adequate financing to service our financial obligations without material franchise or business impact.
The principal elements of our liquidity management framework are our Contingency Funding Plan, our Cash Capital Policy and our assessment of Modeled Liquidity Outflow (“MLO”).
Contingency Funding Plan. Our Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:
Repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;
Maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;
Higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;
Liquidity outflows related to possible credit downgrade;
Lower availability of secured funding;
Client cash withdrawals;
The anticipated funding of outstanding investment and loan commitments; and
Certain accrued expenses and other liabilities and fixed costs.
Cash Capital Policy. We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following:
Illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;
A portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and
Drawdowns of unfunded commitments.
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To ensure that we do not need to liquidate inventory in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios we maintain. Our total long-term capital of $13.2 billion at February 28, 2021 exceeded our cash capital requirements.
MLO. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of our policy to ensure we have sufficient funds to cover what we estimate may be needed in a liquidity crisis, we hold more cash and unencumbered securities and have greater long-term debt balances than our businesses would otherwise require. As part of this estimation process, we calculate an MLO that could be experienced in a liquidity crisis. MLO is based on a scenario that includes both a market-wide stress and firm-specific stress, characterized by some or all of the following elements:
Global recession, default by a medium-sized sovereign, low consumer and corporate confidence, and general financial instability.
Severely challenged market environment with material declines in equity markets and widening of credit spreads.
Damaging follow-on impacts to financial institutions leading to the failure of a large bank.
A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.
The following are the critical modeling parameters of the MLO:
Liquidity needs over a 30-day scenario.
A two-notch downgrade of our long-term senior unsecured credit ratings.
No support from government funding facilities.
A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows (e.g., actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.
No diversification benefit across liquidity risks. We assume that liquidity risks are additive.
The calculation of our MLO under the above stresses and modeling parameters considers the following potential contractual and contingent cash and collateral outflows:
All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products assuming we will be unable to issue new unsecured debt or rollover any maturing debt.
Repurchases of our outstanding long-term debt in the ordinary course of business as a market maker.
A portion of upcoming contractual maturities of secured funding trades due to either the inability to refinance or the ability to refinance only at wider haircuts (i.e., on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral and counterparty concentration.
Collateral postings to counterparties due to adverse changes in the value of our over-the-counter (“OTC”) derivatives and other outflows due to trade terminations, collateral substitutions, collateral disputes, collateral calls or termination payments required by a two-notch downgrade in our credit ratings.
Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded derivatives and any increase in initial margin and guarantee fund requirements by derivative clearing houses.
Liquidity outflows associated with our prime services business, including withdrawals of customer credit balances, and a reduction in customer short positions.
Liquidity outflows to clearing banks to ensure timely settlements of cash and securities transactions.
Draws on our unfunded commitments considering, among other things, the type of commitment and counterparty.
Other upcoming large cash outflows, such as tax payments.
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Based on the sources and uses of liquidity calculated under the MLO scenarios, we determine, based on a calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and consider any adjustments that may be necessary to our inventory balances and cash holdings. At February 28, 2021, we had sufficient excess liquidity to meet all contingent cash outflows detailed in the MLO. We regularly refine our model to reflect changes in market or economic conditions and our business mix.
Sources of Liquidity
The following are financial instruments that are cash and cash equivalents or are deemed by management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time (dollars in thousands):
February 28, 2021Average Balance Three Months ended
February 28, 2021 (1)
November 30, 2020
Cash and cash equivalents:
Cash in banks$1,621,608 $2,960,754 $1,979,058 
Money market investments (2)5,085,874 3,402,188 5,132,871 
Total cash and cash equivalents6,707,482 6,362,942 7,111,929 
Other sources of liquidity:
Debt securities owned and securities purchased under agreements to resell (3)990,510 1,174,837 1,180,410 
Other (4)416,377 430,080 312,511 
Total other sources1,406,887 1,604,917 1,492,921 
Total cash and cash equivalents and other liquidity sources$8,114,369 $7,967,859 $8,604,850 
Total cash and cash equivalents and other liquidity sources as % of Total assets15.8 %18.0 %
Total cash and cash equivalents and other liquidity sources as % of Total assets less goodwill and intangible assets16.4 %18.7 %
(1)Average balances are calculated based on weekly balances.
(2)At February 28, 2021 and November 30, 2020, $5,071.0 million and $5,118.0 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities and repurchase agreements that are fully collateralized by cash or government securities. The remaining $14.9 million and $14.9 million at February 28, 2021 and November 30, 2020, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the three months ended February 28, 2021 was $3,394.7 million. 
(3)Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
(4)Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from our Financial instruments owned that are currently not pledged after considering reasonable financing haircuts.
In addition to the cash balances and liquidity pool presented above, the majority of financial instruments (both long and short) in our trading accounts are actively traded and readily marketable. At February 28, 2021, we had the ability to readily obtain repurchase financing for 67.0% of our inventory at haircuts of 10% or less, which reflects the liquidity of our inventory. In addition, as a matter of our policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, certain of our Financial instruments owned, primarily consisting of bank loans, consumer loans and investments are predominantly funded by long term capital. Under our cash capital policy, we model capital allocation levels that are more stringent than the haircuts used in the market for secured funding; and we maintain surplus capital at these more stringent levels. We continually assess the liquidity of our inventory based on the level at which we could obtain financing in the marketplace for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less.
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The following summarizes our financial instruments by asset class that we consider to be of a liquid nature and the amount of such assets that have not been pledged as collateral at February 28, 2021 and November 30, 2020 (in thousands):
February 28, 2021November 30, 2020
Liquid Financial InstrumentsUnencumbered Liquid Financial Instruments (2)Liquid Financial InstrumentsUnencumbered Liquid Financial Instruments (2)
Corporate equity securities$2,552,964 $386,688 $2,191,536 $238,129 
Corporate debt securities2,432,402 51,691 2,298,591 50,217 
U.S. government, agency and municipal securities2,787,053 58,802 3,336,361 110,586 
Other sovereign obligations2,415,981 952,038 2,518,928 1,101,272 
Agency mortgage-backed securities (1)1,718,972 — 1,652,743 — 
Loans and other receivables541,807 — 564,112 — 
Total$12,449,179 $1,449,219 $12,562,271 $1,500,204 
(1)Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
(2)Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.
Average liquid financial instruments were $23.0 billion for the three months ended February 28, 2021, and $16.3 billion and $21.5 billion for the three and twelve months ended November 30, 2020, respectively. Average unencumbered liquid financial instruments were $1.6 billion for the three months ended February 28, 2021, and $1.4 billion for both the three and twelve months ended November 30, 2020.
In addition to being able to be readily financed at modest haircut levels, we estimate that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.
Sources of Funding and Capital Resources
Our assets are funded by equity capital, senior debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables.
Secured Financing
We rely principally on readily available secured funding to finance our inventory of financial instruments. Our ability to support increases in total assets is largely a function of our ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. We finance a portion of our long inventory and cover some of our short inventory by pledging and borrowing securities in the form of repurchase or reverse repurchase agreements (collectively “repos”), respectively. At February 28, 2021, approximately 62.0% of our cash and noncash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. During the three months ended February 28, 2021, an average of approximately 74.0% of our cash and noncash repurchase financing activities used collateral that was considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of our total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory we carry in our trading books. For those asset classes not eligible for central clearing house financing, we seek to execute our bi-lateral financings on an extended term basis and the tenor of our repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets we are financing. The weighted average maturity of cash and noncash repurchase agreements for non-clearing corporation eligible funded inventory is approximately seven months at February 28, 2021.
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Our ability to finance our inventory via central clearinghouses and bi-lateral arrangements is augmented by our ability to draw bank loans on an uncommitted basis under our various banking arrangements. At February 28, 2021, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities and floating rate puttable notes totaled $882.9 million. Interest under the bank lines is generally at a spread over the federal funds rate. Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings outstanding were $884.4 million for the three months ended February 28, 2021.
Our short-term borrowings include facilities that contain certain covenants that, among other things, require us to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of our subsidiaries that are borrowers. At February 28, 2021, we were in compliance with all covenants under these facilities. Our facilities included within short-term borrowings at February 28, 2021 were as follows (in thousands):
Bank of New York Mellon Master Loan Agreement (1)$300,000 
JPMorgan Chase Bank, N.A. Credit Facility (2)274,000 
Royal Bank of Canada Credit Facility (3)200,000 
Bank of New York Mellon Credit Facility (4)100,000 
Total$874,000 
(1)Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement.
(2)Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (“LIBOR”), as defined in this credit facility agreement.
(3)Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%.
(4)Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%.
Our short-term borrowings at February 28, 2021 also include floating rate puttable notes of $6.8 million and other bank loans of $2.1 million.
In addition, the Bank of New York Mellon has agreed to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $150.0 million. The Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for our U.S. broker-dealer, Jefferies LLC. At February 28, 2021, we were in compliance with all debt covenants under the Intraday Credit Facility.
For additional details on our short-term borrowings, refer to Note 11, Short-Term Borrowings, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
In addition to the above financing arrangements, we issue notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for our inventory (our “repurchase agreement financing program”). The notes issued under the program are presented within Other secured financings in our Consolidated Statements of Financial Condition. At February 28, 2021, the outstanding notes were $3.8 billion, bear interest at a spread over LIBOR and mature from March 2021 to January 2023.
For additional details on our repurchase agreement financing program, refer to Note 8, Variable Interest Entities, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
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Total Long-Term Capital
At February 28, 2021 and November 30, 2020, we had total long-term capital of $13.2 billion and $13.0 billion, respectively, resulting in a long-term debt to equity capital ratio of 1.02:1 and 1.05:1, respectively. See “Equity Capital” herein for further information on our change in total equity. Our total long-term capital base at February 28, 2021 and November 30, 2020 was as follows (in thousands):
February 28, 2021November 30, 2020
Long-Term Debt (1)$6,681,815 $6,655,948 
Total Equity6,555,631 6,366,132 
Total Long-Term Capital$13,237,446 $13,022,080 
(1)Long-term debt at February 28, 2021 excludes $189.9 million of our outstanding borrowings under our senior secured revolving credit facility (“Revolving Credit Facility”) and $50.0 million of our secured bank loan. Long-term debt at November 30, 2020 excludes $189.7 million of our outstanding borrowings under our Revolving Credit Facility and $50.0 million of our secured bank loan.
Long-Term Debt
During the three months ended February 28, 2021, long-term debt increased $26.0 million, primarily due to approximately $54.1 million of structured notes issuances, net of retirements, and changes in instrument specific credit risk on structured notes, partially offset by losses associated with interest rate swaps based on their designation as fair value hedges. At February 28, 2021, all of our structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. The fair value of all of our structured notes at February 28, 2021 was $1,784.2 million.
We have a Revolving Credit Facility with a group of commercial banks. At February 28, 2021, borrowings under the Revolving Credit Facility amounted to $189.9 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Revolving Credit Facility agreement. The Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of our subsidiaries. Throughout the period and at February 28, 2021, no instances of noncompliance with the Revolving Credit Facility covenants occurred and we expect to remain in compliance given our current liquidity and anticipated funding requirements given our business plan and profitability expectations.
One of our subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (“Secured Bank Loan”). This Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At February 28, 2021, we were in compliance with all covenants under the Loan and Security Agreement.
At February 28, 2021, our long-term debt, excluding the Revolving Credit Facility and the Secured Bank Loan, has a weighted average maturity of approximately 10.6 years.
For further information, see Note 12, Long-Term Debt, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
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Our long-term debt ratings at March 15, 2021 are as follows:
RatingOutlook
Moody’s Investors Service (1)Baa3Positive
Standard and Poor’sBBBStable
Fitch RatingsBBBStable
(1)On March 15, 2021, Moody’s Investor Service (“Moody’s) affirmed our rating of Baa3 and revised our rating outlook from stable to positive.
At March 15, 2021, the long-term ratings on our principal operating broker-dealers, Jefferies LLC and Jefferies International Limited (a broker-dealer in the United Kingdom (“U.K.”)) are as follows:
Jefferies LLCJefferies International Limited
RatingOutlookRatingOutlook
Moody’s (1)Baa2PositiveBaa2Positive
Standard and Poor’sBBB+StableBBB+Stable
(1)On March 15, 2021, Moody’s affirmed our ratings of Baa2 and revised our rating outlooks from stable to positive on Jefferies LLC and Jefferies International Limited.
Access to external financing to finance our day to day operations, as well as the cost of that financing, is dependent upon various factors, including our debt ratings. Our current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and our market share and competitive position in the markets in which we operate. Deterioration in any of these factors could impact our credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on our business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by us.
In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At February 28, 2021, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of our long-term credit rating below investment grade was $126.9 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management’s best estimate for additional collateral to be called in the event of a credit rating downgrade. The impact of additional collateral requirements is considered in our Contingency Funding Plan and calculation of MLO, as described above.
Equity Capital
As compared to November 30, 2020, the $191.2 million increase to Total Jefferies Group LLC member’s equity at February 28, 2021 is primarily attributed to net earnings, partially offset by net distributions to Jefferies and changes in instrument specific credit risk on structured notes. During the three months ended February 28, 2021, we recognized gains due to foreign currency translation adjustments, net of tax, of $10.8 million the majority of which is due to our £940.5 million investment in our London subsidiaries at February 28, 2021. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Other comprehensive income. For further information on foreign currency translations, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020.
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During the three months ended February 28, 2021, we paid distributions of $153.6 million to Jefferies, based on our results for the three months ended November 30, 2020. In addition, during the three months ended February 28, 2021 we received a contribution of $153.6 million from Jefferies and paid an additional distribution of $153.6 million to Jefferies. At February 28, 2021, we have accrued a distribution payable of $247.0 million, based on our results for the three months ended February 28, 2021.
Net Capital
As a broker-dealer registered with the SEC and member firms of the Financial Industry Regulatory Authority (“FINRA”), Jefferies LLC is subject to the Securities and Exchange Commission Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant (“FCM”), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.
At February 28, 2021, Jefferies LLC’s net capital and excess net capital were as follows (in thousands):
Net CapitalExcess Net Capital
Jefferies LLC$2,019,268 $1,902,913 
FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.
Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the U.K. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. The CFTC has finalized rules establishing capital requirements and financial reporting requirements for CFTC-registered swap dealers not subject to regulation by a banking regulator. We expect that these provisions will result in modifications to the regulatory capital requirements of some of our entities, and will result in some of our other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014. We may also be required in the future to register one or more additional subsidiaries as security-based swap dealers with the SEC. Compliance with these rules is required by October 6, 2021.
The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.
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Other Developments
The U.K. left the European Union on January 31, 2020 and the current transition period ended on December 31, 2020. On January 1, 2021, our U.K. broker dealer, Jefferies International Limited, was no longer able to provide services to European clients under the passport regime. We have taken steps to ensure our ability to provide services to our European clients without interruption by establishing a wholly-owned subsidiary in Germany (“Jefferies GmbH”), which is authorized and regulated in Germany by the Federal Financial Services Authority (“BaFin”). At January 1, 2021, all of our European clients have been migrated to Jefferies GmbH to conduct business across all of our European investment banking, fixed income and equity platforms. There were no client disruptions or settlement issues experienced after this migration.
Central banks and regulators around the world have convened working groups to find, and implement the transition to, suitable replacements for IBORs. We have an active transition program that focuses on an orderly transition from IBORs to alternative reference rates, including internal operational readiness and risk management. We are identifying, assessing and monitoring risk associated with the expected discontinuation of IBORs, which includes taking steps to update operational processes and models and evaluation legacy contracts for any changes that may be required.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements
We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.
In the normal course of business, we engage in other off-balance sheet arrangements, including derivative contracts. Neither derivatives’ notional amounts nor underlying instrument values are reflected as assets or liabilities in our Consolidated Statements of Financial Condition. Rather, the fair values of derivative contracts are reported in our Consolidated Statements of Financial Condition as Financial instruments owned or Financial instruments sold, not yet purchased as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement. For additional information about our accounting policies and our derivative activities, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2020 and Note 4, Fair Value Disclosures, and Note 5, Derivative Financial Instruments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
We are routinely involved with variable interest entities (“VIEs”) in the normal course of business. At February 28, 2021, we did not have any commitments to purchase assets from these VIEs. For additional information regarding our involvement with VIEs, see Note 7, Securitization Activities, and Note 8, Variable Interest Entities, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Due to the uncertainty regarding the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the below contractual obligations table. See Note 15, Income Taxes, in our consolidated financial statements included in this Quarterly Report on Form 10-Q for further information for further information.
For information on our commitments and guarantees, see Note 16, Commitments, Contingencies and Guarantees, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
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Contractual Obligations
The table below provides information about our contractual obligations at February 28, 2021. The table presents principal cash flows with expected maturity dates (in millions):
Expected Maturity Date
202120222023 
and 
2024
2025 
and 
2026
2027 
and 
Later
Total
Debt obligations:
Unsecured long-term debt (contractual principal payments net of unamortized discounts and premiums) (1)$— $10.6 $1,364.3 $70.6 $5,236.3 $6,681.8 
Revolving credit facility (1)189.9 — — — — 189.9 
Secured bank loan (1)50.0 — — — — 50.0 
Interest payment obligations on long-term debt (2)278.5 284.3 482.2 460.6 1,587.8 3,093.4 
Total$518.4 $294.9 $1,846.5 $531.2 $6,824.1 $10,015.1 
(1)For additional information on long-term debt, see Note 12, Long-Term Debt, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
(2)Amounts based on applicable interest rates at February 28, 2021.
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Risk Management
Overview
Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness, viability and profitability. Accordingly, we have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in our business activities include market, credit, liquidity and capital, operational, legal and compliance, new business and reputational risk.
Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Our risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including the Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification.
In achieving our strategic business objectives, our risk appetite incorporates keeping our clients’ interests at the top of our priority list and ensuring we are in compliance with applicable laws, rules and regulations, as well as adhering to the highest ethical standards. We undertake prudent and conservative risk-taking that protects the capital base and franchise, utilizing risk limits and tolerances that avoid outsized risk-taking. We maintain a diversified business mix and avoid significant concentrations to any sector, product, geography, or activity and set quantitative concentration limits to manage this risk. We consider contagion, second order effects and correlation in our risk assessment process and actively seek out value opportunities of all sizes. We manage the risk of opportunities larger than our approved risk levels through risk sharing and risk distribution, sell-down and hedging as appropriate. We have a limited appetite for illiquid assets and complex derivative financial instruments. We maintain the asset quality of our balance sheet through conducting trading activity in liquid markets and generally ensure high turnover of our inventory. We subject less liquid positions and derivative financial instruments to oversight and use a wide variety of specific metrics, limits, and constraints to manage these risks. We protect our reputation and franchise, as well as our standing within the market. We operate a federated approach to risk management with risk oversight responsibilities assigned to those areas of the business that have the appropriate knowledge.
For a discussion of liquidity and capital risk management, refer to the “Liquidity, Financial Condition and Capital Resources” section herein.
Governance and Risk Management Structure and Risk Policy Framework
For a discussion of our governance and risk management structure and our risk management framework, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended November 30, 2020.
Risk Considerations
We apply a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limits reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our risk management framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk (“VaR”), sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage and cash capital.
Market Risk
Market risk is defined as the risk of loss due to fluctuations in the market value of financial assets and liabilities attributable to changes in market variables.
Our market risk principally arises from interest rate risk, from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads, and from equity price risks from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. In addition, commodity price risk results from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices, and foreign exchange risk results from changes in foreign currency rates.
Market risk is present in our market making, proprietary trading, underwriting, specialist and investing activities and is principally managed by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are economically hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and the results of our trading businesses.
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VaR
VaR is a statistical estimate of the potential loss from adverse market movements over a specified time horizon within a specified probability (confidence level). It provides a common risk measure across financial instruments, markets and asset classes. We estimate VaR using a model that simulates revenue and loss distributions on our trading portfolios by applying historical market changes to the current portfolio. We calculate a one-day VaR using a one year look-back period measured at a 95% confidence level.
As with all measures of VaR, our estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one-day horizon and might not capture the market risk over a longer time horizon where moves may be more extreme. Previous changes in market risk factors may not generate accurate predictions of future market movements. While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities.
There was a modest increase in our average daily VaR to $16.02 million for the three months ended February 28, 2021 from $14.92 million for the three months ended November 30, 2020. The increase was primarily driven by a lower diversification effect.
The following table illustrates each separate component of VaR for each component of market risk by interest rate and credit spreads, equity, currency and commodity products, as well as for our overall trading positions using the past 365 days of historical data (in millions):
Daily VaR (1)
Value-at-Risk in Trading Portfolios
VaR at February 28, 2021VaR at November 30, 2020
Daily VaR for the Three Months Ended February 28, 2021Daily VaR for the Three Months Ended November 30, 2020
Risk CategoriesAverageHighLowAverageHighLow
Interest Rates and Credit
   Spreads
$10.35 $8.58 $11.15 $5.83 $7.66 $8.71 $11.57 $6.09 
Equity Prices11.36 10.90 15.71 6.17 12.54 11.14 14.91 7.21 
Currency Rates0.31 0.19 0.31 0.11 0.16 0.13 0.41 0.03 
Commodity Prices0.72 0.42 0.75 0.16 0.44 0.39 0.56 0.28 
Diversification Effect (2)(6.61)(4.07)N/AN/A(2.04)(5.45)N/AN/A
Firmwide$16.13 $16.02 $22.91 $6.94 $18.76 $14.92 $22.78 $8.75 
(1)For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2)The diversification effect is not applicable for the maximum and minimum VaR values as the firmwide VaR and the VaR values for the four risk categories might have occurred on different days during the period.
The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated.
The primary method used to test the efficacy of the VaR model is to compare our actual daily net revenue for those positions included in our VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the overall level down to specific business lines. For the VaR model, trading related revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization activities and net interest income.
For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days). During the three months ended February 28, 2021, results of the evaluation at the aggregate level demonstrated one day when the net trading loss exceeded the 95% one day VaR.
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JEFFERIES GROUP LLC AND SUBSIDIARIES
The chart below reflects our daily VaR over the last four quarters. The increases from August 2020 through mid-January 2021 were driven by the high historical volatility observed throughout the initial period of the pandemic. The recent lower trend from January to the end of February was driven by exposure reductions.
jef-20210228_g1.jpg
Daily Net Trading Revenue
There were nine days with trading losses out of a total of 60 trading days in the three months ended February 28, 2021. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of our trading activities for the three months ended February 28, 2021 (in millions).

jef-20210228_g2.jpg
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JEFFERIES GROUP LLC AND SUBSIDIARIES
Other Risk Measures
Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at February 28, 2021 (in thousands):
10% Sensitivity
Investment in funds (1)$101,782 
Private investments15,012 
Corporate debt securities in default9,867 
Trade claims5,704 
(1)Includes investments in hedge funds, fund of funds and private equity funds. For additional details on these investments refer to “Investments at Fair Value” within Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
The impact of changes in our own credit spreads on our structured notes for which the fair value option was elected is not included in VaR. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.6 million at February 28, 2021, which is included in other comprehensive income.
Stress Tests and Scenario Analysis
Stress tests are used to analyze the potential impact of specific events or extreme market moves on the current portfolio both firm-wide and within business segments. Stress testing is an important part of our risk management approach because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, set risk controls and overall assess and mitigate our risk.
We employ a range of stress scenarios, which comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in the scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates and changes in the shape of the yield curve.
Unlike our VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation. Stress testing complements VaR to cover for potential limitations of VaR such as the breakdown in correlations, non-linear risks, tail risk and extreme events and capturing market moves beyond the confidence levels assumed in the VaR calculations.
Stress testing is performed and reported at least weekly as part of our risk management process and on an ad hoc basis in response to market events or concerns. Current stress tests provide estimated revenue and loss of the current portfolio through a range of both historical and hypothetical events. The stress scenarios are reviewed and assessed at least annually so that they remain relevant and up to date with market developments. Additional hypothetical scenarios are also conducted on a sub-portfolio basis to assess the impact of any relevant idiosyncratic stress events as needed.
Counterparty Credit Risk
Credit risk is the risk of loss due to adverse changes in a counterparty’s credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract.
We are exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations. Credit exposure exists across a wide-range of products, including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts. The main sources of credit risk are:
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Loans and lending arising in connection with our investment banking and capital markets activities, which reflects our exposure at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that are outstanding. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with our portion of a Secured Revolving Credit Facility that is with us and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. For further information on this facility, refer to Note 9, Investments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, we have loans outstanding to certain of our officers and employees (none of whom are executive officers or directors). For further information on these employee loans, refer to Note 19, Related Party Transactions, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Securities and margin financing transactions, which reflect our credit exposure arising from reverse repurchase agreements, repurchase agreements and securities lending agreements to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.
OTC derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. OTC derivative exposure is based on a contract at fair value, net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within our derivative credit exposures.
Cash and cash equivalents, which includes both interest-bearing and non-interest-bearing deposits at banks.
Credit is extended to counterparties in a controlled manner and in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed as a whole to limit exposure to loss related to credit risk. Credit risk is managed according to the Credit Risk Policy, which sets out the process for identifying counterparty credit risk, establishing counterparty limits, and managing and monitoring credit limits. The policy includes our approach for:
Client on-boarding and approving counterparty credit limits;
Negotiating, approving and monitoring credit terms in legal and master documentation;
Determining the analytical standards and risk parameters for ongoing management and monitoring credit risk books;
Actively managing daily exposure, exceptions and breaches; and
Monitoring daily margin call activity and counterparty performance.
Counterparty credit exposure limits are granted within our credit ratings framework, as detailed in the Credit Risk Policy. The Credit Risk Department assesses counterparty credit risk and sets credit limits at the counterparty master agreement level. Limits must be approved by appropriate credit officers and initiated in our credit and trading systems before trading commences. All credit exposures are reviewed against approved limits on a daily basis.
Our Secured Revolving Credit Facility, which supports loan underwritings by Jefferies Finance, is governed under separate policies other than the Credit Risk Policy and is approved by our Board of Directors. The loans outstanding to certain of our officers and employees are extended pursuant to a review by our most senior management.
Current counterparty credit exposures at February 28, 2021 and November 30, 2020 are summarized in the tables below and provided by credit quality, region and industry (in millions). Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in our country risk exposure tables below.

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Counterparty Credit Exposure by Credit Rating
Loans and LendingSecurities and Margin
Finance
OTC DerivativesTotalCash and
Cash Equivalents
Total with Cash and
Cash Equivalents
AtAtAtAtAtAt
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
AAA Range$— $— $0.7 $1.1 $— $0.1 $0.7 $1.2 $5,085.9 $5,132.9 $5,086.6 $5,134.1 
AA Range45.1 45.2 97.7 111.7 40.5 9.8 183.3 166.7 4.6 7.8 187.9 174.5 
A Range0.4 0.2 487.1 542.2 294.0 147.2 781.5 689.6 1,601.2 1,967.9 2,382.7 2,657.5 
BBB Range250.1 250.5 122.7 110.2 13.3 18.1 386.1 378.8 14.4 2.2 400.5 381.0 
BB or Lower50.0 50.0 8.8 8.3 163.1 201.6 221.9 259.9 0.1 0.1 222.0 260.0 
Unrated161.0 142.0 — — 0.3 0.2 161.3 142.2 1.3 1.0 162.6 143.2 
Total$506.6 $487.9 $717.0 $773.5 $511.2 $377.0 $1,734.8 $1,638.4 $6,707.5 $7,111.9 $8,442.3 $8,750.3 
Counterparty Credit Exposure by Region
Loans and LendingSecurities and Margin
Finance
OTC DerivativesTotalCash and
Cash Equivalents
Total with Cash and
Cash Equivalents
AtAtAtAtAtAt
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
February
28,
2021
November 30,
2020
Asia/Latin America/Other$15.0 $15.0 $54.0 $72.6 $21.1 $6.9 $90.1 $94.5 $242.2 $248.4 $332.3 $342.9 
Europe0.2 0.1 298.4 313.0 40.9 42.5 339.5 355.6 111.2 96.4 450.7 452.0