OREANDA-NEWS. Fitch Ratings has affirmed Leucadia National Corporation's (Leucadia) Long-term Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

Fitch has also affirmed Jefferies' ratings today. The Rating Outlook is Stable. For more information, please see the Rating Action Commentary entitled 'Fitch Affirms Jefferies at 'BBB-/F3'; Outlook Stable' dated Feb. 29, 2016.

KEY RATING DRIVERS - IDRs and SENIOR DEBT

The ratings for Leucadia and its main operating subsidiary, the securities firm Jefferies Group LLC (Jefferies), continue to be equalized, as Fitch considers Jefferies a core subsidiary of Leucadia. This is based on Jefferies' significance relative to Leucadia's balance sheet (Jefferies accounted for 46.3% of Leucadia's tangible common equity as of Dec. 31, 2015), shared leadership between the two companies, and the likely role Jefferies will play in Leucadia's future strategic direction.

The affirmation and Stable Outlook reflect Leucadia's low balance sheet leverage, long-dated debt maturity profile, adequate liquidity, and maintenance of relatively conservative operating parameters articulated by management since the March 2013 merger with Jefferies. Ratings are constrained by the company's sizeable concentration in its three largest investments, Jefferies (wholly-owned), National Beef Packing Company, LLC (National Beef, 78.9% owned), and HRG Group, Inc. (HRG, Fitch IDR of 'B' with a Stable Outlook, 23% owned), which collectively accounted for 55.1% of the company's tangible common equity as of Dec. 31, 2015. The rating further takes into account key man risk associated with Leucadia's management team and the potential for variable operating performance as measured by upstream dividend coverage of holding company interest expenses.

JEFFERIES AND NATIONAL BEEF HEADWINDS

Leucadia's strategic direction and investment approach continue to evolve but most investments are performing well or managing current headwinds. Fundamentals are viewed as most challenged for Jefferies and National Beef, but Fitch views this as neutral to Leucadia's credit profile given low leverage at the Leucadia level, combined with de-risking actions taken at the Jefferies level and the limited historical contributions from these entities in the form of upstream dividends to service holding company interest expenses. Jefferies' 2015 performance was impacted by the closure of its Bache commodities business, a challenging sales and trading environment, and its strategic decision to de-risk its fixed income business in response to a perceived reduction in the available market opportunity. National Beef has faced challenges following cattle supply decreases over the last several years. However, the U.S. Department of Agriculture is currently projecting moderate per capita beef consumption increases and lower nominal prices for beef cattle as production rises through 2025.

Leucadia completed several notable transactions in 2015, which provide incremental diversification to the company's existing financial services and merchant banking positions and therefore marginally benefit Leucadia's creditors. The company provided a two-year $300 million senior secured financing to an online provider of foreign currency exchange services (FXCM Inc.) in January 2015, held a 65% ownership position in a residential and mixed-use real estate developer (HomeFed Corporation), which invested $150 million in additional contiguous land in San Diego County in July 2015, and launched several new asset management strategies as part of the Leucadia Asset Management platform. The asset management strategies included a seed investment in the multi-manager Folger Hill Asset Management, the launch of 54 Madison Capital, LLC, a real estate/hospitality special situations investor with $500 million of fund commitments, and more recently, a launch of the quantitative asset manager Tenacis Capital, a systematic macro investment platform, and Lake Hill, an electronic trader in listed options and futures across asset classes. Fitch views the FXCM Inc. and HomeFed Corporation investments as opportunistic and the asset management investments as ways of broadening the company's asset management platform.

CONSERVATIVE LEVERAGE PROFILE

The company continues to maintain a conservative capital and funding structure. Leverage, measured as parent company debt and preferred stock to tangible common equity was 0.14x as of Dec. 31, 2015, down from 0.21x as of Dec. 31, 2014 and 0.23x as of Dec. 31, 2013. Fitch anticipates that this ratio will remain between 0.10x and 0.20x in the near-to-intermediate term as the company continues to build equity via retained earnings, and given that Leucadia has no near-term need for parent company debt issuance since the next Leucadia debt maturity is in October 2023.

Leucadia targets a maximum parent debt to equity ratio of less than 0.50x in a stressed scenario, which assumes a 100% loss on Leucadia' two largest investments excluding Jefferies. This ratio was 0.27x as of Dec. 31, 2015. Since the 0.50x threshold is a self-imposed operating parameter by Leucadia, temporary breaches of the metric do not, in and of themselves, impact Fitch's ratings.

ADEQUATE LIQUIDITY

As a result of recent investment activity, liquidity has declined from all-time-high levels recorded in 2013, but is still adequate in the context of the parent company's debt levels and holding company expenses. Liquidity, defined as cash, available-for-sale investments, and certain other investments that are easily convertible into cash measured $613.8 million at Dec. 31, 2015, down materially from $2.1 billion as of Dec. 31, 2014 and $3.1 billion as of Dec. 31, 2013. Despite reduced liquidity in 2015, Leucadia's current liquidity levels exceed holding company cash operating expenses, parent company interest, and common and preferred dividends by 1.4x over the next 24 months, which is solid for the 'BBB-' rating.

FOCUS ON LONG-TERM VALUE CREATION; VOLATILE UPSTREAM DIVIDEND COVERAGE

The nature of Leucadia's portfolio and the strategic focus on generating long-term investment returns versus earnings growth tends to dampen operating results and create variable overall operating cash flow. On a GAAP basis, consolidated net income was $279.6 million in 2015, up from $204.3 million in 2014, but down from $369.2 million in 2013. The year-over-year increase in 2015 stemmed from lower compensation and benefits, as well as selling, general and other expenses, but this was offset to some extent by declines in principal transactions revenues in 2015, including a $113.2 million fair value adjustment loss in 3Q2015 that reduced Leucadia's cumulative gains from the derivative portion of its investment in FXCM, as well as revenue declines stemming from the effects of cattle-herd rebuilding at National Beef and the challenges from Jefferies' fixed income results.

Leucadia's performance more closely resembles a closed-end alternative fund than a traditional operating company, in Fitch's view, given the company's general strategy to opportunistically invest in portfolio companies on a value-oriented basis. Therefore, U.S. GAAP earnings do not fully reflect Leucadia's economic earnings because of the way Leucadia accounts for its investments, some of which are consolidated and some of which are booked under the equity method. Moreover, certain investments that are consolidated do not necessarily generate upstream dividends that accrue directly to Leucadia.

Upstream dividend coverage of holding company interest expenses comfortably exceeded 1.0x in 2015, driven by distributions from both financial services and merchant banking investments. Fitch views this excess coverage as adequate when considered together with available holding company liquidity. Upstream dividend coverage of holding company interest expenses improved sequentially each year from 2013 to 2015. Fitch expects coverage to improve in 2016 as distributions grow (e.g., growth in Berkadia Commercial Mortgage LLC and Garcadia companies) and as parent company interest expense declines following the company's repayment of its 8.125% senior notes in September 2015.

KEY MAN RISK

Key man risk continues to be a rating constraint for both Leucadia and Jefferies. The CEO of Leucadia also serves as Chairman of the Board and CEO of Jefferies, and the President of Leucadia is also the Chairman of the Executive Committee of Jefferies. Jefferies has broadened and deepened its bench over the past several years, which Fitch views favorably.

RATING SENSIVITIVITIES - IDRs and SENIOR DEBT

Fitch views positive rating momentum as unlikely over the near term, primarily given the company's investment concentrations. Potential positive rating drivers for Leucadia over the longer-term could include demonstrated performance of recent investments and reduced investment concentration, while maintaining a conservative liquidity and leverage profile.

Ratings could be negatively affected by increased concentration of investments, a fundamental shift in financial policy related to parent company liquidity to parent company debt, a change in the company's strategy, and/or a less conservative leverage profile.

Since the ratings of Leucadia and Jefferies are currently equalized due to the strong linkages between the two companies and the likely role Jefferies will play in Leucadia's future strategic direction, a change in Jefferies's ratings and/or Outlook would influence Leucadia's ratings and/or Outlook. The unanticipated departure of key executives at either Jefferies or Leucadia could result in negative rating pressure.

KEY RATING DRIVERS AND SENSITIVITIES - HYBRID SECURITIES

The $125 million of 3.25% cumulative convertible preferred stock issued by Leucadia is notched down twice from the company's IDR. The two-notch differential from the IDR reflects Fitch's view of the subordinated nature of the instrument and the lack of a mandatory conversion feature. The rating assigned to the preferred stock is sensitive to changes in Leucadia's IDR.

Fitch has affirmed the following ratings:

Leucadia National Corporation
--Long-term IDR at 'BBB-'; Outlook Stable;
--Senior unsecured debt at 'BBB-';
--Preferred stock at 'BB'.