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24 Oct 2006
Moody's assigns (P) A1 rating to Dexia Funding Luxembourg S.A.'s hybrid capital issue
Rating outlook is stable for perpetual securities benefiting from a subordinated guarantee of Dexia S.A.
London, 24 October 2006 -- Moody's Investors Service announced that it has assigned a rating of (P)
A1 to the issue by Dexia Funding Luxembourg S.A. (DFL) of
fixed or floating rate perpetual non-cumulative guaranteed securities.
DFL is a Dexia S.A. fully owned special purpose vehicle
incorporated under the laws of Luxembourg, whose activities are
restricted to issuing securities and to investing the proceeds thereof
in loans or other instruments (other than ordinary share capital) issued
by any of the Dexia group banking entities. The first issue that
will be made by DFL, consisting of subordinated perpetual callable
securities, will be eligible to be included in the calculation of
the Tier 1 capital of Dexia S.A. and will benefit from a
subordinated guarantee of Dexia S.A. The rating outlook
Moody's recalled that Dexia S.A. is a Belgian banking group
active in local public sector finance, in retail and private banking,
and in investment management and the provision of insurance services mostly
in Belgium, Europe and in the United States. Moody's noted
that the alignment at Aa2 of the long-term ratings of the Dexia
Group's three main operating entities -- Dexia Credit Local
(rated Aa2/P-1/B+), Dexia Bank Belgium (rated Aa2/P-1/B)
and Dexia Banque Internationale a Luxembourg (rated Aa2/P-1/B)
-- take into consideration the Dexia S.A.
group's cohesive management structure and increasing integration,
as well as Moody's expectation that the group is committed to making its
full resources available to support whichever entity as needed.
The alignment at Aa2 of the group's main entities also reflects the creditworthiness
of the consolidated Dexia S.A. group.
Moody's said that the (P) A1 rating assigned to the perpetual non-cumulative
guaranteed securities to be issued by DFL is based on the subordinated
guarantee provided by Dexia S.A. and, as such,
on the rating agency's assessment of the creditworthiness of Dexia S.A.
and its operating entities. Going forward, Moody's cautioned
that any dilution of the creditworthiness of Dexia S.A.
and its core operating entities, or any structural subordination
identified at holding company level, could affect the ratings assigned
to Dexia S.A. group members including the ratings of the
securities issued by DFL. Moody's added that the (P) A1 rating
assigned to the forthcoming issue of perpetual non-cumulative securities
also reflects their deeply subordinated nature, ranking senior to
the issuer's and guarantor's ordinary shares as well as the issuer's right
to waive interest payments.
DFL is expected to be one of the Dexia group's issuing vehicles going
forward, noted Moody's. DFL will on-lend proceeds
from its issuances to selected operating companies of the Dexia S.A.
group and the loans could qualify, as the case may be, as
solvency capital. According to the structure in place, DFL's
ability to make timely payments on its obligations will primarily rely
on the financial fundamentals of individual operating companies benefiting
from on-loans and their ability to service and repay on-lent
amounts, and secondarily upon the subordinated guarantee of Dexia
S.A. Changes in the long-term ratings of any Dexia
S.A. group members could affect the ratings of securities
issued by DFL.
The notes to be issued by DFL will qualify for Basket C classification
by Moody's, i.e. will be treated as 50% equity
and 50% debt in the adjusted financial leverage calculation.
The securities are perpetual and redeemable after ten years, with
the benefit of regulatory oversight and are ranked moderate on the No
Maturity dimension of equity. Dividend payments can be optionally
waived or compulsorily waived upon specific trigger events occurring and
are non-cumulative resulting in a moderate ranking on No Ongoing
Payments. When distributions are waived, payments resulting
from on-loans made by DFL to an operating entity will be channeled
back to Dexia S.A. In the event of a specific trigger event
taking place resulting in the need to recapitalise Dexia S.A.
and such capital increase failing to be approved, the principal
amount of the securities will be reduced. However, this amount
can be written-back if Dexia S.A. records positive
consolidated profits for at least two consecutive years. In a bankruptcy,
the claim will be for the full principal amount regardless of any write-down.
Due to the subordinated guarantee provided by Dexia S.A.,
the securities will rank junior to all senior and subordinated creditors
of Dexia S.A. As a result, the securities are ranked
moderate on Loss Absorption.
Headquartered in Brussels, Dexia S.A. reported audited
consolidated assets of Euro 508.8 billion and a net profit group
share of Euro 2 billion at end-2005.
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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