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Just a few months after Dexia Bank received a clean bill of health in European Union stress tests, France and Belgium are considering a second bail out of the bank.
As has been highlighted in a number of recent press reports, Dexia has a material exposure to the debt of countries in the European Union, notably Greece and Italy and has been having difficulty funding itself in the interbank markets.
Recent press reports suggest that the bank is planning to pool its troubled assets into a “bad bank” with Belgian and French government guarantees to protect depositors and its municipal lending business.
The French European Affairs Minister, Jean Leonetti has stated that “Dexia won’t go bankrupt and France will guarantee deposits”.
A number of registered providers have entered into loan agreements and ISDA agreements with Dexia over the last few years (including through Dexia’s acquisition of the Bradford & Bingley loan book).
Given the current uncertainties of the bank, there are a number of things that registered providers should be thinking about:
If cash has been posted as collateral for swap liabilities or to maintain compliance with asset cover ratios, should you replace it with property security as soon as possible?
Does your ISDA documentation permit you to request that cash collateral is deposited with a bank other than Dexia?
Is it prudent to terminate any of your existing swaps to avoid the requirement for cash collateral?
Familiarise yourself with the market disruption and increased costs clauses in your loan agreements in the event that Dexia seek to invoke any of their provisions;
Consider drawing down unutilised commitments under your loan agreements sooner rather than later. However, this should be weighed up against the risk of the bank invoking the market disruption and/or increased costs clauses and the resulting higher borrowing costs.
For more information or advice please contact Julian Barker on 0207 880 4365 or julian.barker@devonshires.co.uk.
