TEXT-Fitch maintains DMA's OF rating on rating watch negative
(The following statement was released by the rating agency)
Oct 24 - Fitch Ratings has maintained Dexia Municipal Agency's (DMA; 'A+'/Negative) outstanding EUR64.2bn obligations foncieres (OF) rated at 'AAA' on Rating Watch Negative (RWN).
Following the release of Fitch's Covered Bond Criteria published 10th September 2012, DMA's covered bond ratings were placed on RWN, to reflect the insufficient public 5.0% overcollateralisation (OC) commitment, compared to the current break-even OC of 15.4% for the 'AAA' rating. Fitch believes dormant programmes to be more at risk than active programmes; notably when considering OC and asset pool quality maintenance (see "Fitch Places 1 French Covered Bond on RWN; Assigns French Programmes Outlooks & D-Caps" dated 14 September 2012 available on www.fitchratings.com). Due to the regulatory treatment of securitisation tranches included in DMA's cover pool, the public commitment of 5% translates into a 11.6% nominal OC level.
Dexia is currently under a restructuring process and the sale of DMA to a new entity - Nouvel Etablissement de Credit (NEC) -, indirectly owned by the French State via the Caisse des Depots ('AAA'/Negative/'F1+')) and La Banque Postale ('AA-'/Negative/'F1+'), is planned to take place in early 2013. Following the completion of this transaction, DMA's primary function would be to refinance new public sector loans originated by the joint venture between La Banque Postale and Caisse des Depots (JV LBP/CDC).
In the hypothetical scenario where this restructuring does not go ahead and DMA remains permanently in a wind down mode, Fitch will, in its analysis of DMA's OF, solely give credit to the OC the issuer publicly commits to instead of giving credit to the lowest OC of the past 12 months, as otherwise applied for programmes of issuers rated at least 'F2'. Considering an OC level in line with the public commitment, the covered bonds could potentially be rated one-notch above DMA's Issuer Default Rating. In Fitch's view, this scenario is unlikely considering the current involvement of the French government; therefore the RWN will be reviewed once the restructuration of DMA is clarified.
Additionally, Fitch has published an exposure draft with respect to its criteria for the asset analysis of European public entities' covered bonds (see "Fitch Publishes Exposure Draft for the Asset Analysis of European Public Entities' Covered Bonds" dated 10 October 2012 available on www.fitchratings.com).The consultation phase runs until the 20th November 2012. According to the agency's preliminary analysis, DMA's OF rating could be affected if the criteria changes were implemented as proposed and OC protecting investors would remain at the current level of 15.4%. The agency will review the OC supporting the rating once the final criteria are implemented.
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