London, 16 December 2011 -- Moody's Investors Service has downgraded to Aa1 on review for downgrade
from Aaa on review for downgrade the covered bonds issued by Dexia Municipal
Agency (the issuer), under the French SCF law. Today's
rating action is prompted by the downgrade of Dexia Credit Local,
acting as the sponsor bank, to Baa1 on review for downgrade from
A3 on review for downgrade.
RATINGS RATIONALE
Today's rating action on the covered bonds is prompted by Moody's Financial
Institutions Group's rating action on Dexia Credit Local's senior
unsecured and short-term ratings (now Baa1/Prime 2). For
further information, please refer to "Moody's downgrades Dexia Credit
Local and Dexia Banque Internationale à Luxembourg to Baa1 from
A3, on review for downgrade " published on 15 December 2011.
Moody's decision also reflects the rating agency's concerns
as to the delay in implementing the sale of majority of the shares in
the issuer to the Caisse des Dépôts and La Banque Postale,
as initially announced on 20 October 2011. Moody's notes that if
Dexia Credit Local's long-term senior unsecured rating is downgraded
below Baa1, the Timely Payment Indicator (TPI) framework could further
constrain the corresponding covered bond ratings.
During the review of the covered bonds, Moody's will consider the
possible negative rating impact in two steps:
(a) Expected Loss: During its review, Moody's will assess
the effect of Dexia Credit Local's downgrade on the covered bonds.
The analysis will include (i) a review of the swap arrangements currently
in place, as entities within Dexia Group provide several of these
swaps, (ii) a legal review of the sponsor bank's engagement
to provide over-collateralisation, and (iii) a detailed analysis
of the credit quality of the substitute assets comprised in the cover
pool, as some of them constitute credit exposures to Dexia Group
entities.
(b) TPI: The TPI framework will limit the covered bond ratings,
if the senior unsecured rating of the sponsor bank is downgraded below
a certain level. Based on the current TPI of "Probable-High",
if Dexia Credit Local's senior unsecured long-term rating is further
downgraded, the covered bond rating may be downgraded.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and TPI framework analysis.
EXPECTED LOSS: Moody's determines a rating based on the expected
loss on the bond. The primary model used is Moody's Covered
Bond Model (COBOL) which determines expected loss as a function of the
issuer's probability of default, measured by the issuer's
rating, and the stressed losses on the cover pool assets following
issuer default.
TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI)
which indicates the likelihood that timely payment will be made to covered
bondholders following issuer default. The effect of the TPI framework
is to limit the covered bond rating to a certain number of notches above
the issuer's rating.
For Dexia Municipal Agency's covered bonds, Moody's has assigned
a TPI of "Probable High."
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
The TPI Leeway measures the number of notches by which the issuer's rating
may be downgraded before the covered bonds are downgraded under the TPI
framework.
Based on the current TPI of "Probable High," there is
no TPI Leeway for this programme, meaning that the covered bonds
might be downgraded as a result of a TPI cap if Dexia Credit Local is
downgraded below Baa1, all other variables being equal.
A multiple-notch downgrade of the covered bonds might occur in
certain limited circumstances. Some examples might be (i) a sovereign
downgrade negatively affecting both the issuer's senior unsecured rating
and the TPI; (ii) a multiple notch downgrade of the issuer;
or (iii) a material reduction of the value of the cover pool.
As noted in Moody's comment "Rising Severity of Euro Area Sovereign
Crisis Threatens Credit Standing of All EU Sovereigns" (28 November
2011), the risk of sovereign defaults or the exit of countries from
the Euro area is rising. As a result, Moody's could lower
the maximum achievable rating for covered bonds transactions in some countries,
which could result in rating downgrades.
RATING METHODOLOGY
The principal methodology used in this rating was "Moody's
Approach to Rating Covered Bonds" published in March 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
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.
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, parties not 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.
Hadrien Rogier
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Dexia Municipal Agency's covered bonds
