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Flowers Stands to Lose Only $47.8 Mln from MF Global, Source Says

MF Global made it official today and filed for Chapter 11 bankruptcy protection. But the losses for J.C. Flowers & Co., the New York PE firm, aren’t as bad as believed.

The MF Global filing came after a frantic weekend for the futures broker. As late as Sunday, the firm led by former N.J. Governor Jon Corzine had a deal to sell its assets to Interactive Brokers Group, according to the New York Post. But those talks fell through. Shares of MF Global were up 12 cents to $1.32 a share in afternoon trading Monday.

Today, Standard & Poor’s Ratings Services downgraded MF Global’s debt and counterparty credit rating to “D,” which means default and is the bottom of S&P’s ratings scale.

J. Christopher Flowers, once viewed as the most successful Wall Street banker ever, invested in MF Global. In July 2008, his firm, J.C. Flowers, committed to invest up to $300 million in MF Global in return for Series A preferred stock. The Series A preferred stock converts to common shares at a price of $12.50, according to SEC filings.

Flowers’ loss due to MF Global isn’t very significant, a source says. Flowers, via his second fund, did buy MF Global convertible preferred stock with a “face value of $150 million,” says a second source, who is familiar with the situation. But Flowers only paid $87.4 million for the preferred stock and never invested anymore, the person says. Flowers has received about $39.6 million in dividends since then, so the PE firm’s potential loss due to MF Global is only $47.8 million, the second source says.

The MF Global investment came from Flower’s sophomore fund, which raised $7 billion in 2007. That pool isn’t doing well and has a net IRR of -31%, according to March 31 data from CalPERS. Flower’s third fund, which raised $2.3 billion in 2009, is performing much better and is half invested, the source says. The pool currently touts an unrealized gain of about 30%, the person says.

Officials for Flowers declined comment.