Knight Plummets on Refinancing, Unclear if It Will Be Bought Outright

Knight Capital KCG shares fell fell 28% in the premarket Monday after after it announced rescue financing that will shore up its books following $440 million of errant trading losses, but at steep price. Investing firms in the market maker will receive 2% convertible preferred stock that will translate into about a 70% stake in the company, according to an SEC filing. The investing firms were not named. CNBC said citing sources that the group of investors included Jefferies JEF, General Atlantic, Blackstone Group BX TD Ameritrade TD, Stephens and Stifel Nicolaus SF. The deal is expected to close Monday morning. It remains unclear if the financing paves the way for the company to be sold completely. There still could be interest in Knight being purchased outright. Shawn Matthews, CEO of the broker-dealer unit at Cantor Fitzgerald told Bloomberg on Friday that he is "not sure" whether his company will buy Knight, but acknowledged Cantor's interest in acquisitions generally, and that Knight presented both a long-term and short-term opportunity. Also on Monday, the NYSE said it has temporarily re-assigned Knight's stock custodial role to Getco LLC. The exchange said the move is temporary, and will help Knight's financing effort. Knight and Getco are cooperating with the plan, according to the NYSE. Knight shares last traded at $2.89 in the premarket, valuing the company at less than $265 million. It had been valued at more than $1 billion prior to the errant stock trading last week caused by a software glitch. Almost overnight, the software glitch generated a pre-tax loss equal to about 30% of shareholders equity in the company, eroding its capital base. The trading loss was larger than its $365 million in cash on hand, and more than 100 times what the company earned in the second quarter.