Dexia responded to Moody’s putting the obligations foncières of Dexia Municipal Agency on review for downgrade on Tuesday by quoting the rating agency’s high collateral score of its cover pool and highlighting the legislation underpinning the covered bonds.

Moody’s put the Aaa rating of the public sector obligations foncières on review on Tuesday after having put Dexia Crédit Local, the covered bond programme’s sponsor bank, on review for downgrade on Monday.

Dexia noted in a statement yesterday (Wednesday) that the obligations foncières review was a consequence of Moody’s action on the parent bank.

“Dexia Municipal Agency reminds that the quality of its portfolio (cover pool) and the legal protection conferred to investors and swap counterparties provide very strong protection,” it said. “Dexia Municipal Agency is well capitalized and its solvency ratio (Tier 1) is over 30%.”

Dexia cited overcollateralisation of 17% in June and September and the composition of the cover pool, mainly loans to French and Belgian local authorities.

“In its June 2011 performance overview published last week,” it said, “Moody’s attributes top Dexia MA cover pool one of the best collateral scores among French covered bond issuers (that is, displaying statistically a low level of expected losses should a default occur, an extremely rare outcome in the case of public sector loans).”

Dexia also mentioned two ways in which Dexia MA can cover future liquidity needs even if the capital markets remain closed: direct access to interbank and ECB repo (even in the event of default of its parent company); and because it has a large amount of asset directly eligible for refinancing at central banks with low haircuts. It added that Dexia MA has no cumulated liquidity needs in the next 180 days.

“These solid fundamentals, combined with strict balance sheet management rules, lead to a strong protection of investors’ interest in Dexia MA’s obligations foncières,” it said.

Standard & Poor’s said yesterday that it will assess the potentially negative credit impact on Dexia Crédit Local, Dexia Bank SA and Dexia Banque Internationale à Luxembourg (all rated A on negative outlook) of measures being taken “to resolve structural problems penalising its operational activities”.

Dexia confirmed today that it has entered exclusive negotiations with international investors over the sale of Dexia BIL.