Moody’s today (Thursday) downgraded Dexia Crédit Local and Dexia Banque Internationale à Luxembourg from A3 to Baa1 because of uncertainty over the comprehensiveness of a funding guarantee scheme that the Belgian, French, and Luxembourg states intend to provide to Dexia Crédit Local.

The rating agency said the downgrade of Dexia Crédit Local also captures the risks of further deterioration of the issuer’s creditworthiness until final implementation of these measures stabilise its liquidity position.

“Moody’s principal concern on Dexia Crédit Local has been its liquidity profile,” said the rating agency.

Moody’s said that Dexia Crédit Local’s ratings have been supported by the assumption that a comprehensive guarantee scheme by the three states would be implemented shortly, and that it continues to believe that the states remain committed to supporting Dexia Crédit Local. However, the rating agency said that the announcement by Dexia of a temporary guarantee until 31 May 2012, with a maximum term of drawings of three years and a ceiling of Eu45bn versus an initially announced term of 10 years and Eu90bn maximum, introduces additional uncertainty as to the comprehensiveness and timeliness of the definitive guarantee.

Dexia Banque Internationale à Luxembourg was also downgraded in the rating action because Moody’s considers that, due to the high uncertainty as to whether the bank can achieve timely exit from the Dexia group, the difficulties affecting Dexia Crédit Local may eventually affect Dexia Banque Internationale à Luxembourg.

Discussions about the sale of Dexia Banque Internationale à Luxembourg are ongoing, Dexia said in an update on 8 December.

Caisse des Dépôts and La Banque Postale have acquired 65% and 5% respectively of the shares of Dexia Municipal Agency, and Caisse des Dépôts and La Banque Postale have started a joint venture to originate loans to French local authorities, refinanced through Dexia Municipal Agency. The fate of Dexia Kommunalbank Deutschland, a Pfandbrief issuer owned by Crédit Local, is understood to remain unclear.