Société de Financement Local, a new bank that owns the refinancing entity replacing Dexia MA, became effective today (Thursday) after the French minister of finance signed an agreement last week that marked the cutting of all ties between the new entities and Dexia.

Once Dexia MA, now Caisse Française de Financement Local

The new credit institution was previously called Nouvel Etablissement de Crédit, and is 75% owned by the French state, 20% by Caisse de Dépôts (CDC) and 5% by La Banque Postale. The French regulator, the Autorité de Contrôle Prudential, on 16 January granted the banking agreement necessary to launch Société de Financement Local (SFIL).

SFIL in turns owns the new entity succeeding Dexia Municipal Agency, which has been named Caisse Française de Financement Local. A société de crédit foncier, it has the aim of refinancing medium and long term loans originated by the joint venture between La Banque Postale and Caisse de Dépôts, which will lend up to Eu5bn to local authorities, their associations and French public hospitals.

Bernd Volk, head of covered bond research at Deutsche Bank, said that there are no capital or guarantee links to Dexia left following the creation of SFIL, and that the cover pool of Caisse Française de Financement Local will be almost exclusively made up of French public sector assets due to the joint venture’s focus on French loans.

“We expect a new rating for the entity, which is likely to benefit from the strong shareholder structure,” he said. “In our view, while timing is not clear yet, Caisse Française de Financement Local is likely to tap the market in the future.”

The French minister of finance and economics, Pierre Moscovici, said that the creation of SFIL “constitutes a major step in the permanent response that the government intends to extend to the structural and refinancing difficulties the public sector encountered after the withdrawal of Dexia”.

The agreement between the French authorities and CDC and La Banque Postale came after the European Commission approved an orderly resolution plan for the Dexia Group that included the creation of a new French-owned financial institution to which Dexia MA would be sold.