Moody's downgrades Leucadia notes, rates new note Ba2

Moody's Investors Service said it assigned Ba2 corporate family and probability-of-default ratings to Leucadia National Corp. and a Ba2 (LGD3, 44%) rating to its proposed $600 million offering of senior notes due 2017.

The agency also downgraded the company's $350 million 3.75% senior convertible notes due 2014 to B1 (LGD5, 88%) from Ba3, downgraded its $98 million junior subordinated deferrable interest debentures to B1 (LGD6, 95%) from Ba3 and affirmed its $376 million 7% senior notes due 2013 and $100 million 7¾% senior notes due 2013 at Ba2 (LGD3, 44%).

The outlook was revised to negative from stable.

Proceeds from the offering are expected to be applied toward the funding of a joint venture between Leucadia National and Jefferies Group, Inc., who announced plans to expand and restructure the operation of its high-yield secondary market business into an entity to be called Jefferies High Yield Trading, LLC.

The agency said the ratings are largely influenced by the company's opportunistic acquisition-based strategic profile - in particular, in identifying possible acquisitions, Leucadia tends to seek assets and companies that are out of favor or troubled and, as a result, are selling substantially below the values Leucadia believes to be present.

Notwithstanding the risks to creditors related to such a strategy, Moody's noted that Leucadia has over time been largely successful in its acquisition/divestiture-based strategy, as reflected in part in its substantial and increased book value and its success in building a substantial cash position.

Moody's said it downgraded the subordinated debt because of the increased leverage profile of the company following the completion of the present securities offering and because of the addition of a meaningful amount of senior unsecured debt to the company's capital structure, which has the potential to place increased cash flow demands on the company's subsidiaries and has the effect of reducing the expected recovery rate for subordinated creditors in the event of default.

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