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02 Apr 2009
Paris, April 02, 2009 -- Moody's Investors Service today downgraded the hybrid instruments of Dexia
Group's main banking entities, Dexia Credit Local (DCL), Dexia
Bank Belgium (DBB) and Dexia Banque Internationale ` Luxembourg
(DBIL), and their issuing vehicles. The preferred stock ratings
were downgraded to B2 from Baa1, with a negative outlook.
The junior subordinated debt ratings were lowered to Baa2 from A3,
with a negative outlook. The long-term debt and deposit
ratings and bank financial strength ratings (BFSRs) of DCL, DBB
and DBIL were unchanged at, respectively, A1 and D+ mapping
to a Ba1 baseline credit assessment (BCA), with a negative outlook.
The Prime-1 short-term ratings were also unchanged.
The downgrade to B2 from Baa1 of the non-cumulative Tier I instruments
issued by DCL, DBIL and Dexia Funding Luxembourg (DFL, guaranteed
by Dexia Group) reflects, in Moody's opinion, a lower
probability that these hybrid instruments would receive government support
and an increasingly likelihood that the instruments may suffer coupon
deferral if necessary. The ratings also take into account the non-cumulative features
of these perpetual instruments, implying a higher expected loss
since they are not subject to payment at a later date.
Moody's views the weak solvency triggers attached to the Tier I
issues as less likely to be breached in the medium term. However,
the rating agency believes that the optional non-payment of interest
by the issuer attached to these perpetual instruments increases the risk
of a coupon deferral. A regulatory intervention clause attached
to these Tier I instruments enables regulators to suspend coupon-payment
at their discretion. While the Belgian, French and Luxembourg
regulators have not provided specific guidance on their approach,
Moody's views the risk of a suspension of interest payments due
to regulatory intervention as rising in the current adverse environment
since all three governments have provided support to Dexia. However,
the rating agency considers that the risk of a principal write-down
is less likely in the medium term given the weak solvency triggers protecting
investors and Moody's expectations that Dexia Group, DCL and
DBIL capital positions will remain adequate, along with a lower
probability of regulatory intervention than in the case of a coupon deferral.
Additionally, Moody's lowered the junior subordinated debt
ratings of DBIL, DBB and issuing vehicle Dexia Overseas Limited,
to Baa2 from A3. The junior subordinated debt rating is three notches
lower than the senior subordinated debt rating of A2 and closer to the
BCA of Ba1. The rating agency believes that the cumulative nature
of the interest on such instruments as well as the presence of Tier 1
instruments with non-cumulative features in the bank's capital
structure as described above reduces the incentive to defer interest on
junior subordinated debt. However, the rating incorporates
a minimal risk of deferred payment in the event of an unforeseen need
for further government support or a regulatory intervention that would
include these instruments as loss absorbing capital.
Moody's outlook on all the above mentioned instruments, the
ratings of which are notched down from the senior unsecured debt rating
of Dexia's main operating entities, is negative, in
line with the negative outlook on the senior debt of Dexia's main
The last rating action on Dexia was implemented on 19 January 2009,
when Moody's downgraded the long-term debt and deposit ratings
of Dexia Group's main banking entities, DCL, DBB and DBIL,
to A1 from Aa3. In addition, the BFSRs of DCL, DBB
and DBIL were downgraded to D+ from C-. Ratings of
preferred stock, junior subordinated and subordinated debts issued
by those entities and/or Dexia SA and their issuing vehicles were also
downgraded to, respectively, Baa1, A3 and A2.The
outlook on the long-term ratings and BFSRs was changed to negative.
The principal methodologies used in rating the issuers covered 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", which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies sub-directory. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Credit Policy & Methodologies directory.
Dexia SA, headquartered in Brussels, had unaudited total assets
of EUR651 billion at year-end 2008. Dexia SA recorded a
negative net profit, group share, of EUR3.3 billion
for the full-year 2008, down from a positive EUR2.5
billion in 2007.
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Dexia's hybrid instruments
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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