Moody’s and Standard & Poor’s have assigned Aa2 and AA+ ratings, respectively, to Société de Financement Local (SFIL), a new French public sector bank that is the holding company of the covered bond issuing entity succeeding Dexia Municipal Agency.

The ratings are on negative outlook.

SFIL is a new public sector bank that has the purpose of providing financing to French local governments and hospitals, and is 75% owned directly by the French state, 20% by Caisse des Dépôts et Consignations (CDC) and 5% by La Banque Postale.

SFIL is the parent of Caisse Française de Financement Local (CFFL), the covered bond issuing vehicle succeeding Dexia Municipal Agency (Dexia MA). SFIL became effective yesterday (See here for previous coverage.)

Moody’s Aa2 rating incorporates five notches of rating uplift from a Baa1 standalone credit assessment to reflect the rating agency’s assumption that SFIL would benefit from a very high likelihood of extraordinary support from the French government, in case of need.

The rating agency also said that the standalone credit assessment reflects SFIL’s low risk profile based on the quality of the lending portfolios of Dexia MA following the transfer of this entity from its former owner, Dexia Credit Local, to SFIL, and an adequate funding structure.

SFIL is currently funded by CDC and will also benefit from La Banque Postale funding over time as new production develops, added Moody’s.

S&P’s rating of SFIL is based on the rating agency’s view that there is an “almost certain” likelihood that French state would provide timely and sufficient extraordinary support to the bank in the event of financial distress.

“We consequently equalise SFIL’s long term rating with that on France,” it said.

S&P rates SFIL BBB+ on a standalone basis.