Fitch Rates Jefferies Group, Inc. Senior Notes 'BBB'; Placed on Rating Watch Negative

NEW YORK--()--Fitch Ratings has assigned 'BBB' ratings to Jefferies Group, Inc.'s (Jefferies) $600 million 5.125% senior unsecured notes due 2023 and $400 million 6.5% senior unsecured notes due 2043. The notes have been placed on Rating Watch Negative, consistent with Jefferies' Long-Term Issuer Default Rating. The proposed notes have been issued under Jefferies' shelf registration.

The $1 billion issuance will marginally increase Jefferies' pro forma leverage, according to Fitch's estimates. Fitch believes this transaction will have a relatively modest impact on the firm's credit profile. The proposed notes have significantly longer maturities than Jefferies' outstanding unsecured notes, and therefore have a positive impact on the company's debt maturity profile.

Approximately $250 million of the proceeds from the dual-tranche offering will be used to pre-fund Jefferies' 5.875% senior notes due 2014 and approximately $350 million of the proceeds to fund the required redemption of two series of outstanding non-controlling membership interests in Jefferies High Yield Holdings, LLC. The remaining $400 million will be used for general corporate purposes.

RATING DRIVERS AND SENSITIVITIES

Jefferies' ratings were placed on Rating Watch Negative on Nov. 12, 2012 in connection with the company's planned merger with Leucadia National Corp. (Leucadia). Fitch expects to downgrade Jefferies' ratings by one notch upon consummation of the merger. This reflects Fitch's view that after the proposed merger, Jefferies would become much more exposed to the market risk inherent in the other subsidiaries' investments at Leucadia. Conversely, becoming a privately-owned company may help insulate Jefferies from external market pressures similar to those experienced in November 2011 For more information, please see the press release titled 'Fitch Places Jefferies' 'BBB' L-T IDR on Rating Watch Negative on Proposed Merger with Leucadia,' available at www.fitchratings.com.

Jefferies, a Delaware-incorporated holding company, is a well-established full-service investment bank and institutional securities firm primarily 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 Nov. 30, 2012, Jefferies had U.S. GAAP total assets of $36.3 billion and shareholders' equity of $3.4 billion (including non-controlling interests).

Fitch has assigned the following ratings:

Jefferies Group, Inc.

--$600 million 5.125% senior unsecured notes due 2023 'BBB'; Rating Watch Negative;

--$400 million 6.5% senior unsecured notes due 2043 'BBB'; Rating Watch Negative.

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);

--'Securities Firms Criteria' (Aug. 15, 2012).

Applicable Criteria and Related Research:

Securities Firms Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686137

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

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Contacts

Fitch Ratings
Primary Analyst
Joo-Yung Lee, +1-212-908-0560
Managing Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Ilya Ivashkov, CFA, +1-212-908-0769
Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Joo-Yung Lee, +1-212-908-0560
Managing Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Ilya Ivashkov, CFA, +1-212-908-0769
Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com