BFSRs upgraded to C- from D+
Paris, February 12, 2010 -- Moody's Investors Service today upgraded to C- from D+ the
bank financial strength ratings (BFSRs) of Dexia Group's (Dexia) main
banking entities, Dexia Bank Belgium (DBB), Dexia Credit Local
(DCL) and Dexia Banque Internationale à Luxembourg (DBIL).
The rating agency also affirmed the A1 long-term debt and deposit
ratings of DBB, DCL and DBIL. The outlooks on the long-term
debt and deposit ratings and on the BFSRs were changed to stable from
negative. The short-term debt and deposit ratings were affirmed
at Prime-1. Moody's also affirmed, with a stable outlook,
the A2 dated subordinated debt ratings of DBB, DCL and DBIL.
This rating action follows the agreement reached by Dexia and the European
Commission on the group's restructuring plan, including,
inter alia, Dexia's upcoming exit from the State guarantee
scheme, earlier than previously anticipated, in light of the
improvements in its funding situation. Moody's rating action
also reflects Dexia's satisfactory capital adequacy according to
the rating agency's stress-test scenario analysis.
In addition, Moody's upgraded to B3 from Caa1 the ratings of the
preferred stock securities issued by DCL and by Dexia Funding Luxembourg
(DFL, guaranteed by Dexia Group) and to B1 from Caa1 the ratings
of the preferred stock securities issued by DBIL. The rating of
the junior subordinated debt issued by DBB was confirmed at Ba2.
The ratings of the other junior subordinated debt instruments were upgraded
from Baa2 to Baa1, one notch higher than the Baa2 Adjusted Baseline
Credit Assessments (BCAs) of DBB, DCL and DBIL. These rating
actions conclude the review for possible downgrade initiated on 18 November
2009, in line with Moody's revised Guidelines for Rating Bank
Hybrids and Subordinated Debt published in November 2009 and pending the
European Commission's approval of Dexia's restructuring plan.
All these subordinated debt ratings now carry a stable outlook.
UPGRADE OF DBB, DCL and DBIL's BFSRs AT C-, STABLE
The BFSRs of DBB, DCL and DBIL were upgraded to C- (with
a stable outlook and mapping to a Baa2 BCA) from D+ (with a negative
outlook and mapping to a Ba1 BCA). This reflects Moody's belief
that these levels adequately represent these entities' creditworthiness,
given Dexia's more stable funding profile and de-risking
achieved under the group's transformation plan in recent quarters,
its adequate capital adequacy and, above all, the proposed
restructuring plan, which includes:
- the earlier-than-anticipated exit from the State
guarantees on Dexia's funding, under which issuance of short-term
guaranteed debt will cease at end-May 2010 and issuance of all
guaranteed debt will cease at end-June 2010; in Moody's
view, this reflects the normalisation of Dexia's funding situation;
- only limited changes to the group's overall scope,
franchise and capital headroom, the largest change being the disposal
of its 70% stake in Dexia Crediop in Italy by the end of 2012;
- Dexia's commitment to continue to de-risk its balance
sheet going forward, encompassing the reduction in the group's
reliance on short-term funding over the coming years as well as
the attrition of its legacy portfolios.
The C- BFSRs incorporate the potential uncertainties linked to
the disposal of the agreed sale of assets as well as Moody's expectation
that the de-leveraging and higher funding costs implied by the
lengthening of Dexia's liabilities will weigh on the group's
profitability in the coming quarters, despite the efficiency efforts
achieved so far and those expected. However, they also reflect
the rating agency's opinion that the bank's capital position represents
an adequate buffer for it to absorb potential losses or cover market volatility
arising from its loan or securities portfolios.
The stable outlook on the C- BFSRs captures Moody's expectation
of further improvements in the group's funding structure in line
with the agreement with the EC and as already demonstrated over recent
quarters, along with the more retail-oriented and overall
lower risk profile targeted.
The very high level of integration and mutual support prevailing within
the centrally managed Dexia Group continues to be reflected by Moody's
approach of assigning BFSRs and debt and deposit ratings at the same level
for the three main Group companies DCL, DBB and DBIL. This
approach has been reinforced by the outcome of the discussions with the
European Commission on Dexia's restructuring plan.
SENIOR DEBT RATINGS AFFIRMED WITH A STABLE OUTLOOK
DBB, DCL and DBIL's A1 long-term debt and deposit ratings
were affirmed, reflecting Moody's expectation that these banks
will remain systemically important institutions via notably a significant
retail presence in two European markets, Belgium and Luxembourg.
The ratings carry a stable outlook, in line with the stable outlook
on these banks' BFSRs.
HYBRIDS AND SUBORDINATED DEBT RATINGS UPGRADED
Moody's upgrade to B3 from Caa1 of the rating of the preferred stock securities
(qualifying as Tier 1 capital) issued by DCL is driven by the upgrade
of the BFSR to C- from D+ and the rating agency's unchanged
assessment of a very high probability of coupon suspension on these securities
with optional deferral features. Moody's notes that the dividend
pusher provision attached to these instruments might become applicable
in the event of the payment of an internal dividend by DCL to Dexia SA.
However, Moody's has not incorporated this factor into its
current B3 rating given the uncertainty linked to the EC decision allowing
such an internal dividend payment. In the event coupons payments
are resumed, Moody's sees positive ratings pressure for these
Similarly, the rating upgrade to B3 from Caa1 of the preferred stock
securities issued by Dexia Funding Luxembourg (DFL, guaranteed by
Dexia Group) also incorporates the upgrade of the BFSR and Moody's
assessment of a high probability of coupon suspension on these securities.
Moody's notes that the dividend pusher provision attached to these
instruments might become applicable in the event of the payment of a dividend
by Dexia SA. If such a decision were made by Dexia's board,
there may be upward ratings pressure for these instruments as well.
The rating upgrade to B1 from Caa1 of the preferred stock securities issued
by DBIL reflects Moody's assessment of a lower probability of coupon
suspension given the mandatory nature of coupon payment linked to DBIL's
available profits which Moody's expects to be positive for the year
Moody's also confirmed the rating of the junior subordinated debt issued
by DBB at Ba2, incorporating the continuing risk of missed coupons
on these instruments with optional deferral mechanism. Given the
fact that coupon payments on these instruments are cumulative, the
loss severity of a coupon deferral is limited if this were to occur.
The current ratings of the above-mentioned hybrids and junior subordinated
debt reflect Moody's opinion that, given the restructuring
of the group, there is still some risk of coupon deferral on these
The stable outlooks are in line with Moody's conservative expected
loss assumptions in terms of the likelihood and time horizon of missed
Simultaneously, Moody's upgraded the ratings of the other junior
subordinated issues by DBIL and issuing vehicle Dexia Overseas Limited
(guaranteed by DBB) to Baa1 from Baa2, in line with the upgrades
of Dexia's main issuing entities' intrinsic financial strength.
The rating agency views the risk of deferred payment on these securities
as more limited given the weak solvency triggers and understands that
there are no optional coupon deferral features attached to these issues.
Moreover, the cumulative nature of the interest on such instruments
limits the expected loss for investors.
The list of the above-mentioned affected securities can be accessed
through this link:
LAST RATING ACTIONS
The last rating action on Dexia Group's main banking entities was on 19
January 2009, when Moody's downgraded the BFSRs of DCL, DBB
and DBIL to D+ (negative outlook) from C-. In addition,
the three entities' long-term debt and deposit ratings were downgraded
to A1 (negative outlook) from Aa3.
The principal methodologies used in rating the issuers affected by this
press release are "Bank Financial Strength Ratings: Global Methodology"
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology" published in February 2007 and "Moody's
Guidelines for Rating Bank Hybrid Securities and Subordinated Debt"
published in November 2009, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these issuers can also be found in
the Rating Methodologies sub-directory on Moody's website.
Dexia SA, headquartered in Brussels, had total assets of EUR651
billion at year-end 2008. Dexia SA also recorded a net loss,
group share, of EUR3.3 billion for the full year.
For the first nine months of 2009, the group reported a net profit,
group share, of EUR808 million, up from a net loss of EUR723
million during the equivalent period of 2008.
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
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Moody's affirms Dexia's main operating units at A1, changes outlook to stable from negative
Financial Institutions Group
Moody's Deutschland GmbH
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SUBSCRIBERS: 44 20 7772 5454