* Exchange aims to help Dexia's refinancing plans
* Other banks may use exchanges to cut refinancing risk
(Adds more detail)
By Jane Merriman
LONDON, Sept 8 Dexia Municipal Agency, part of
the Franco-Belgian financial group, announced plans on Wednesday
to exchange seven covered bonds worth 14.5 billion euros ($18.41
billion) to lengthen its debt maturities and reduce refinancing
The exchange is the first of its kind involving a covered
bond and could pave the way for other similar transactions from
European banks facing a big hump of bond maturities in the next
couple of years.
Dexia's exchange, which is voluntary, does not bring in
fresh cash, but gives the company more breathing space in terms
of refinancing outstanding debts.
"The purpose of the offer is to increase the duration of
Dexia MA's liabilities and take advantage of attractive market
conditions," Dexia said in a statement.
The firm said the exchange was also designed to improve
secondary market liquidity in Dexia covered bonds.
Dexia aims to exchange the seven bonds with maturities
ranging from November 2010 to March 2014 for three new covered
bonds with maturities of five, eight and 10 years. Each new
series of bonds will have a maximum size of 3 billion euros.
Covered bonds are backed by pools of mortgages or public
sector loans that remain on the issuing bank's balance sheet.
Investors have a claim on these assets in any default.
The exchange will help Dexia complete its 2010 funding
programme, one of the lead banks on the deal said.
It will allow the firm to carry out a refinancing that would
otherwise not be possible except through several fundraisings of
the primary bond markets, it said.
Bond exchanges have been widely used by companies and
governments to manage debt maturities.
Banks have also done buy-backs and exchanges of hybrid
bonds, but exchanges of covered bonds are a new direction. Banks
could find it useful as a way to push out debt maturities beyond
2011, 2012, when there will be a lot of banks with bonds to
"This tool has been used in the corporate sector and
sovereign sector in the past, now lots of people in the
financial sector are looking at it," said Richard Kemmish, head
of covered bond origination at Credit Suisse.
"Issuers are concerned about upcoming refinancing in 2011.
You could see exchanges of senior unsecured bonds for covered
bonds and government guaranteed issues for covered bonds. Lots
are looking at it - so watch this space."
Dexia's bond investors have until Sept. 15 to accept its
The banks managing the deal are Credit Suisse, Deutsche Bank
(Reporting by Jane Merriman; Editing by Sharon Lindores)