Fitch has kept on Rating Watch Negative obligations foncières issued by Dexia MA due to an insufficient public OC commitment, but yesterday (Wednesday) suggested a downgrade is unlikely given the involvement of the French government in a restructuring of Dexia.

Dexia Municipal Agency covered bonds are rated AAA by Fitch, but the rating was placed on Rating Watch Negative (RWN) in September following the roll-out of revised rating criteria because it considers the publicly committed overcollateralisation level – 5% – to be insufficient for a triple-A rating. The breakeven OC level for a triple-A rating for the obligations foncières is 15.4%, according to Fitch. A public OC commitment of 5% is equivalent to 11.6% nominal OC due to the regulatory treatment of securitisation tranches included in Dexia MA’s cover pool, it added.

The rating announcement comes as Dexia is being restructured, with Dexia MA planned to be sold to a new entity early next year. Details announced at the end of September about the new entity are in line with proposals agreed earlier this year, said analysts.

According to DZ Bank analysts, the French state, Caisse des Dépôts et Consignations and La Banque Postale will together own a public holding company that will in turn hold 68.3% of shares in Nouvel Etablissement de Crédit (NEC), the new entity that will become the 100% owner of Dexia MA. Dexia Crédit Local (DCL) will acquire the remaining 31.7% of NEC.

“The plan is for all new municipal finance business to be conducted by a joint venture (to be licensed as a lending institution) between CDC and Banque Postale,” said the analysts. “It is further intended that newly-transacted business, which will be eligible as cover for obligations foncières, will be assigned to Dexia MA to be refinanced through issues of covered bonds.”

Dexia MA will not, however, engage in active new lending itself, they added.

The restructuring plans are subject to authorisation by the European Commission.

Fitch spelled said the implications for Dexia MA’s covered bond ratings in the “hypothetical scenario” that the restructuring does not go ahead and Dexia MA remains in wind-down mode would be a downgrade to one notch above Dexia MA’s issuer rating – but said that this scenario is unlikely considering the involvement of the French government.

“Therefore the RWN will be reviewed once the restructuration of Dexia MA is clarified,” said Fitch.