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Rating Action:

Moody's downgrades hybrid Tier 1 securities of Dexia Funding Luxembourg and Dexia Credit Local to C (hyb)

Global Credit Research - 12 Mar 2012

Paris, March 12, 2012 -- Moody's Investors Service has today downgraded to C (hyb) from Ca (hyb) the ratings of the 4.892% perpetual non-cumulative securities issued by Dexia Funding Luxembourg (DFL's hybrid Tier 1) and the 4.3% undated deeply subordinated notes issued by Dexia Credit Local (DCL's hybrid Tier 1). These actions follow the public tender offers for DFL's hybrid Tier 1 by Dexia Bank Belgium ("DBB", A3 on review uncertain; Prime-1 on review down; D/Ba2 on review uncertain) and DCL's hybrid Tier 1 by Dexia Credit Local ("DCL", Baa1 on review down; Prime-2 on review down; E+/B2 on review down) announced on 20 February, 2012 and 2 March, 2012 respectively, and which we consider as impairment distressed exchanges based on Moody's definitions.

RATINGS RATIONALE

The downgrade of DFL and DCL's hybrid Tier 1 securities was driven by Moody's view that the 20 February, 2012 and 2 March, 2012 tender offers result in further impairments to the position of the holders of the respective securities to the extent that the terms of the transactions reflect the very high probability of durable coupon payment omissions on both hybrids, were the investors to continue to hold them.

Due to the on-going restructuring of Dexia Group and the state aid it continues to receive in the form of shareholders' support and guaranteed debt, Moody's believes that the risk of a continued ban by the EU Commission on dividend payment by both Dexia S.A. and DCL is likely to remain very high for a prolonged period of time. This would likely result in very high probability of suspension of preferred coupons on both the hybrid Tier 1 security of DFL, the issuing vehicle of Dexia S.A., and the hybrid Tier 1 security of DCL. The resulting impairment was reflected to a certain degree in the Ca (hyb) ratings previously assigned on an expected-loss basis to both securities. Nevertheless, the tender offers of 20 February, 2012 and 2 March, 2012 imply a loss of at least 75% on both securities, which is more consistent with a rating of C. We consider these as impairment distressed exchanges, as the tender offers have the effect of allowing the obligors to avoid a contractually-allowable payment omission.

KEY RATINGS SENSITIVITIES

DFL and DCL's hybrid Tier 1 securities could be upgraded if our expected loss assumption reduces as a result of a resumption of coupon payments, although Moody's views this scenario as highly unlikely.

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other Factors used in this rating are described in Moody's Approach to Evaluating Distressed Exchanges published in March 2009.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

This rated entity or its agent(s) participated in the rating process. The rated entity or its agent(s) provided Moody's access to the books, records and other relevant internal documents of the rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Yasuko Nakamura
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades hybrid Tier 1 securities of Dexia Funding Luxembourg and Dexia Credit Local to C (hyb)
No Related Data.

 

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