Dexia Kommunalbank Deutschland will be run off over the course of the resolution process of the Dexia group without writing new business, Dexia announced at the end of last year in communication thought to be the first clarifying the future of DKD.

Dexia Kommunalbank Deutschland

In contrast to Dexia Municipal Agency, which is being sold to a new credit institution (see here for more), the Pfandbrief issuer will remain with its parent Dexia Crédit Local and be managed in run-off mode without any new production, according to a Dexia press release from 31 December about the European Commission approval of a revised resolution plan for the Dexia group.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that this was the first communication from either Dexia or the EC on DKD, and that the commitment not to engage in new lending means the cover pool will be static.

“On the funding side, DKD will very likely be limited to a few private placements to smooth out any asset liability mismatches (and S&P has the programme’s ALMM risk at ‘low’) but not more,” he said.

Standard & Poor’s rates DKD’s programme AA-.

Jérôme Gyss, director, investor relations at Dexia, said that the orderly resolution process will last several decades, and DKD will continue to play its role as delineated under Dexia’s orderly resolution plan in line with its commitment not to compete for new business.

“The entity will continue to be active to some extent,” he said, “and the need may arise to adjust the liability profile for asset-liability management reasons, although there is no plan in the foreseeable future for issuance requiring widespread placement.”

Dexia Sabadell, Dexia Kommunalkredit Austria and Dexia Lettres de Gage Banque are also identified by Dexia as “residual group entities” that will be run off without engaging in any new business.

According to DKD’s most recent cover pool report, from 30 September, the issuer has Eu28.79bn public sector Pfandbriefe outstanding, backed by a cover pool of Eu31.25bn (nominal values), giving overcollateralisation of Eu2.46bn. German assets comprise 69% of the cover pool, followed by Italy (8%), Austria (5%), Spain (2%), then France, Poland and the US (1% each), with others amounting to 13%.