Dexia SA, the lender being broken up after losing access to funding, faces a loss of about 1 billion euros ($1.3 billion) on the sale of a majority stake in its unit that sells covered bonds to finance French municipal lending.
The French government and state-owned Caisse des Depots et Consignations will each buy 31.7 percent of Dexia Municipal Agency’s parent company and La Banque Postale SA will acquire 4.9 percent, Dexia, based in Brussels and Paris, said today in a statement. The transaction values the covered-bond vehicle at 380 million euros, according to Dexia.
“That implies a deep discount to book value for a triple-A covered bond issuer,” Dirk Peeters, an analyst at KBC Securities NV in Brussels who recommends investors reduce their Dexia holdings, wrote in a note today. “We hope to see how much equity, if any, is remaining” in Dexia, he said.
France salvaged the original deal by agreeing to buy a direct stake in Dexia Municipal Agency, which preserves Paris-based Caisse des Depots from having to acquire full control. Last year’s collapse of Dexia threatened municipal lending months before the country’s presidential elections.
Moody’s Investors Service stripped Dexia Municipal Agency’s covered bonds backed by public-sector loans from their top rating on Dec. 16 and put the Aa1 rating on review for a downgrade. Standard & Poor’s has put its AAA rating on the covered bonds on “negative watch,” or review for a ratings cut.
Dexia Municipal Agency, which had 63.4 billion euros of covered bonds outstanding at the end of June, will provide funding for a joint venture of Banque Postale and Caisse des Depots that will replace Dexia Credit Local SA as France’s municipal lender.
Dexia agreed to provide legal and financial guarantees to Dexia Municipal Agency and the French government will guarantee 70 percent of losses exceeding 500 million euros on structured loans to French municipalities, Dexia said, referring to the original agreement announced on Oct. 20.
The state guarantee needs to be approved by the European Commission, the European Union’s antitrust regulator. The agreement also includes a provision for a price adjustment after three years, both upward and downward and subject to an undisclosed limit, Dexia said.