TEXT-Fitch: DMA transformation has no impact on covered bond ratings

Fri Feb 1, 2013 12:43pm EST

Feb 1 - Fitch Ratings says the change in ownership of Dexia Municipal Agency
(DMA) has no impact on the rating of its covered bonds. Total outstanding
obligations foncieres (OF) amount to EUR61.5bn and are rated 'AAA' and on Rating
Watch Negative. Also, as a consequence of the finalisation of DMA's
restructuring process, Fitch will no longer consider the OF programme to be in
wind-down. However, the OF remain on RWN pending the implementation of Fitch's
newly published 'Criteria for the Asset Analysis of European Public Entities'
Covered Bonds' dated 30 January 2013 at www.fitchratings.com.

DMA, the refinancing arm for the public sector lending business of its former
parent, Dexia Credit Local (DCL, 'A+'/Negative/' F1+') has become a 100%
subsidiary of Societe de Financement Local (SFIL, 'AA+'/Negative ), a newly
created financial institution majority owned by the French state (see "Fitch
Assigns Societe de Financement Local 'AA+' Rating" dated 01 February 2013 at
www.fitchratings.com). At the same time, it has been renamed Caisse Francaise de
Financement Local (CFFL).

SFIL's 'AA+' Long-term Issuer Default Rating (IDR) now acts as reference IDR for
CFFL's OF rating. As a result, it constitutes the new floor for the OF's rating
instead of DCL's IDR which was used previously. Fitch considers CFFL to have an
extremely high probability of being supported by SFIL should it be needed. In
fact, the French state has explicitly pledged its full support to both SFIL and
CFFL. In addition, the two entities will function in an integrated manner, as
CFFL subcontracts all operational tasks to SFIL. To that end, SFIL takes over
some of the staff and systems of DCL, which is maintained in solvent wind-down.

Fitch expects CFFL to activate its OF programme in the coming months: as
approved by the European Commission under Dexia's resolution plan, CFFL is
tasked with the refinancing of new loans to French local authorities and public
hospitals. Origination will be undertaken via a joint venture between Caisse des
Depots et Consignations and La Banque Postale, and is intended to reach up to
EUR5bn per year. Therefore the agency will not apply its analytical treatment of
wind-down programmes to CFFL's OF. DMA did not issue any OF in 2012 and its
likelihood to be managed in a wind-down mode led to the RWN placed on the OF
rating, as the level of overcollateralisation (OC) the agency would have then
relied upon was below the break-even level for a 'AAA' rating.

The RWN on the OF rating is thus solely driven by the application of Fitch's new
criteria for the credit analysis of portfolios consisting of European public
entities. Over the coming week, Fitch will recalculate its 'AAA' breakeven OC
for CFFL's OF. Depending on the outcome compared to the level of OC relied upon
by the agency, we expect to resolve the RWN based on the issuer's feedback
within the following two weeks.

Additional information is available at www.fitchratings.com.
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