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Fitch Places Leucadia National's IDR on Positive Watch on Proposed Merger with Jefferies Group

  Fitch Places Leucadia National's IDR on Positive Watch on Proposed Merger
  with Jefferies Group

Business Wire

NEW YORK -- November 12, 2012

Fitch Ratings has placed Leucadia National Corporation's (Leucadia) Long-term
Issuer Default Rating (IDR) on Rating Watch Positive. A full list of ratings
follows at the end of this press release.

Today's action follows Leucadia's announcement that it has entered into a
definitive agreement to merge with Jefferies Group Inc. (rated 'BBB'/ Rating
Watch Negative by Fitch). Fitch expects to resolve the Rating Watch Positive
once the merger is completed in the first quarter of 2013. Assuming the
transaction is completed, and absent material adverse credit developments in
the interim, the outcome is expected to result in a two notch upgrade of
Leucadia's rating to 'BBB-'.

The expected upgrade of Leucadia's rating reflects Leucadia's highly liquid
and lowly leveraged balance sheet, which the new management team from
Jefferies has represented that it is committed to maintaining. Additionally, a
wholly owned Jefferies is expected to be a source of strength to Leucadia in
terms of deal flow and expertise. The ratings going forward are expected to be
aligned with those of Jefferies owing to the potential for capital flows
between the two entities.

Under Fitch's criteria 'Rating FI Subsidiaries and Holding Companies',
Jefferies would be considered a core subsidiary based on its significance
relative to Leucadia's equity and the likely role it will play in its future
strategic direction. Key executive management will be shared by both firms
despite the separate Boards of Directors. Management has discretion to move
capital between Jefferies and Leucadia, although they are not expected to
under normal market conditions.

While the formal retirement of Ian Cumming from Leucadia in conjunction with
the merger is a credit negative in terms of his investment experience, track
record and industry relationships, Fitch takes comfort in Joe Steinberg
remaining highly involved as Chairman of the Board. Furthermore, Fitch has
been sensitive to looming succession planning issues in recent years, and the
proposed merger, with Joseph Steinberg remaining as Chairman and the
introduction of the Jefferies executive management team alleviates these
concerns in the near- to intermediate term.

Post-merger, Jefferies' and Leucadia's ratings are expected to be equalized
and given the ratings linkage, any material changes in either credit profile
will have an impact on both ratings. The 'BBB-' rating would reflect the
proposed operating parameters articulated by Jefferies and Leucadia
management, including:

--Maintaining Leucadia's debt-to-equity ratio below 0.5x, assuming Leucadia's
two largest investments are fully impaired and the DTA is excluded from the
calculation;

--Maintaining Leucadia's ratio of minimum liquid assets to parent company debt
below 1.0x;

--Maintaining Leucadia's minimum cash and equivalents of at least 10% of book
value (excluding Jefferies); and

--Limiting Leucadia's single largest investment to 20% of book value with all
other investments limited to 10% of book value (both excluding Jefferies).

RATING DRIVERS AND SENSITIVITIES

After completion of the merger, Fitch would view a firm commitment to a
conservative liquidity profile, limited investment concentrations and reduced
leverage at the parent company, as well as maintenance or improvement of
Jefferies' current credit profile over the long term as positive rating
drivers. The interaction between Jefferies and Leucadia will play an important
role in the longer-term value and risk profile of the combined franchise, in
Fitch's view.

Jefferies' and Leucadia's ratings could be negatively impacted by an increase
in leverage, a less conservative liquidity or funding profile or more
aggressive growth strategy at either entity. Ratings would also be negatively
impacted if Fitch perceives the risks taken in Leucadia's investment portfolio
as increasing materially from current levels. Fitch will continue to assess
the ability of Jefferies' management team to run both companies effectively.
Furthermore, unanticipated departure of key executives at either Jefferies or
Leucadia could result in negative actions.

Leucudia is a merchant bank with roughly $9 billion in assets and $6 billion
in book equity. The company has been managed by partners Ian Cumming and
Joseph Steinberg since 1978.
Jefferies, a Delaware-incorporated holding company, is a well-established full
service investment bank and institutional securities firm serving
middle-market clients and investors. Its primary broker/dealer operating
subsidiary, Jefferies & Company, Inc. holds the vast majority of the firm's
consolidated assets and is regulated by the SEC. At Aug. 31, 2011 Jefferies
had US GAAP total assets of $45.1 billion, shareholders' equity of $3.5
billion (including noncontrolling interests) and net income of $236.2 million.

Fitch has placed the following Leucadia ratings on Rating Watch Positive:

--Long-term IDR 'BB';
--Senior unsecured debt 'BB';
--Senior Subordinated debt 'BB-';

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Investment Manager and Alternative Funds Criteria' (Dec. 23. 2011);
--'Securities Firms Criteria' (Aug. 15, 2012);
--'Jefferies Group, Inc. Full Rating Report' (Aug. 1, 2011);
--'Leucadia National Corp.' Credit Update (March 14, 2012).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Investment Manager and Alternative Funds Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=661367
Securities Firms Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686137
Credit Analysis: Leucadia National Corp.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=273320

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst:
Brandon Bajema, CPA, CFA, +1-312-606-2332
Associate Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Paul Ryndak, CFA, +1-312-606-3194
Director
or
Committee Chairperson:
Nathan Flanders
Managing Director
Nathan.flanders@fitchratings.com
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com