DBRS Places Jr. Subordinated Debt and Preferred Shares of Dexia Entities Under Review with Negative Implications

DBRS has today placed its “A” ratings for the junior subordinated debt and its BBB (low) ratings for the preferred shares of Dexia Group’s (Dexia or the Group) three main operating banks (Dexia Bank Belgium, Dexia Crédit Local and Dexia Banque Internationale à Luxembourg) Under Review with Negative Implications. The Senior Long-term Debt & Deposits ratings for these entities remain at A (high) and the Short-term Debt and Deposits ratings remain at R-1 (middle). The trend on the Senior Long-term and Short-term Debt and Deposits ratings remains Negative.

The review will consider the impact on these securities of the European Commission’s (EC) ruling preventing Dexia’s payment of discretionary coupons. This ruling prevents Dexia from paying discretionary coupons or exercising any call options on hybrid Tier 1 instruments or Upper Tier 2 perpetual instruments. In addition, Dexia cannot pay dividends to shareholders and cannot make any acquisitions. These requirements are currently valid through the end of February 2010.

To date, Dexia has missed the discretionary coupon payments on the junior subordinated debt issued out of Dexia Crédit Local and Dexia Bank Belgium that were due on 18 November 2009. Additionally, Dexia Banque Internationale à Luxembourg has an upcoming discretionary payment to be made on 6 July 2010. DBRS anticipates that the Group will continue to defer the discretionary payments on any junior subordinated debt until an alternate ruling is made by the EC, which is expected by the end of February 2010.

While a two notch downgrade is a likely outcome of the review for the junior sub-debt, given the characteristics of these bonds and the halting of payments, the unusual circumstances of this ruling and its ongoing nature could affect the outcome.

Note:
All figures are in euros unless otherwise noted.

The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) Rating.