January 23, 2013 / 7:02 PM / 5 years ago

New French municipal lender to renegotiate dud loans

PARIS, Jan 23 (Reuters) - France’s new municipal financing body aims to renegotiate at least a billion euros per year in toxic loans inherited from stricken bank Dexia, its incoming head said on Wednesday.

France is setting up the Societe de Financement Local (SFIL) to keep credit flowing to cash-strapped local authorities following the collapse of Dexia, which used to hold 40 percent of the municipal lending market.

The government is tapping the head of the Agence France Tresor public debt management agency, Philippe Mills, to lead the SFIL, which will raise funds on markets that is lent to local authorities by the state-owned Banque Postale in a partnership with another state-owned bank, the CDC.

SFIL, which will be 75-percent owned by the French state, 20 percent by the CDC and 5 percent by the Banque Postale, will take on a portfolio of 90 billion euros ($120 billion) in loans from Dexia’s Dexma unit.

Of that figure, 9.4 billion euros are structured loans with about 1,000 clients which are deemed to be at risk and in need of renegotiation, Mills said.

“It will be part of SFIL’s role to discuss with local authorities... in order to renegotiate,” Mills said at a news conference. “We’ll see what volume of renegotiation is possible each year, (but) the aim is at least a billion euros.”

Mills is to take up his new job on Feb. 1, and his current deputy Maya Atig will run the AFT until his successor is named in March, the agency said in a statement.

Dexia was propped up with billions of euros of public money, after its model of relying on short-term borrowing to finance long-term lending broke down as credit markets tightened.

Bank of France Governor Christian Noyer warned in October that French municipal authorities faced a funding crunch unless a successor to Dexia was not set up by the end of January. ($1=0.7530 euros) (Reporting by Leigh Thomas and Yann Le Guernigou; Editing by Mike Nesbit)

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