Annual report 2010 - Dexia.com

Notes to the consolidated financial statementsManagement reportConsolidatedfinancial statementsAdditional information Annual financial statementsC. Transactions with the Belgian,French and luxembourg StatesGuarantee mechanism in favour of Dexia'sfinancingOn 9 December 2008, the French, Belgian and LuxembourgStates and Dexia entered into a First Demand GuaranteeAgreement implementing the principles set forth in theProtocol of 9 October 2008 between the three States andDexia. Pursuant to this guarantee agreement, the threeStates' guarantee severally, but not jointly, the performanceby Dexia SA, Dexia Banque Internationale à Luxembourg,Dexia Bank Belgium and Dexia Crédit Local (including certainof their branches and issuance vehicles) of their repaymentobligations resulting from certain financings provided bycentral banks, credit institutions and other institutional orprofessional investors, provided that these financings werecontracted or issued between 9 October 2008 and 31 October2009 and maturing at the latest on 31 October 2011.The States' guarantee the repayment obligations in thefollowing proportion:(i) 60.5% for the Belgian State;(ii) 36.5% for the French State; and(iii) 3.0% for the Luxembourg State.To supplement the Guarantee Agreement on operational andprocedural aspects, the three States and Dexia have enteredinto an Operational Memorandum. This memorandumprovides, among other things, for a monitoring process ofthe guaranteed financings on a daily basis, including a dailypublication of the aggregate guaranteed amount and, withrespect to guaranteed bond issues of Dexia, a system ofeligibility certificates whereby the States issue, on Dexia'srequest, certificates confirming for each bond issue that it iscovered by the Guarantee Agreement.On 19 November 2008, the European Commission authorisedthis guarantee mechanism for a period of 6 months asfrom 3 October 2008, with an automatic extension untilthe Commission's definitive decision, on condition that arestructuring plan be filed with the Commission. In March2009, the three States confirmed the extension of theguarantee in accordance with the decision of the EuropeanCommission of 13 March 2009.By an Addendum to the above-mentioned GuaranteeAgreement of 9 December 2008, dated 14 October 2009, theBelgian, French and Luxembourg States and Dexia agreed torenew the guarantee scheme for a period of one year, coveringfinancings contracted or issued at the latest on 31 October2010. The parties also wished to effect certain changes to theguarantee in order to limit the States' intervention to a strictminimum and to allow an orderly exit out of the guaranteewithin a credible time-horizon. The changes include:(i) the decrease of the maximum of the total amount ofguaranteed financings from EUR 150 billion to EUR 100billion, with a commitment by Dexia to undertake its bestefforts to limit this amount to EUR 80 billion;(ii) the extension to 4 years of the maximum duration of thenew financings contracted or issued; and(iii) the waiver by Dexia of the benefit of the guarantee, asfrom 16 October 2009, for all new contracts with a maturityof less than one month and all contracts with an indefiniteterm.The Guarantee Agreements provided for the followingremuneration to be paid by Dexia to the States:(i) for financings with a maturity of less than 12 months:50 bps on an annual basis calculated on the average amountguaranteed financings outstanding; and(ii) for financings with a maturity of 12 months or more:50 bps on an annual basis, increased by the lowest of (i) themedian of the Dexia CDS 5 years spread calculated between1 January 2007 and 31 August 2008 or (ii) the median of the5 years CDS spreads of all credit institutions with a long-termcredit rating equivalent to that of Dexia, calculated on theaverage amount guaranteed financings outstanding.The renewal and modifications as provided for in theAddendum of 14 October 2009 have been duly authorised byan interim decision of the European Commission for a periodof 4 months as from 30 October 2009 (i.e., until 28 February2010) or until the final decision – if such decision is adoptedprior to 28 February 2010 – of the European Commission inthe context of the State aid procedure opened on 13 March2009.By separate agreement dated 17 March 2010, the Belgian,French and Luxembourg States and Dexia amended andsupplemented the above-mentioned Addendum to theGuarantee Agreement of 14 October 2009 to reflect theterms of the final decision of the European Commission inthe context of the State aid procedure of 26 February 2010.The changes include:(i) advancing the latest issue date for guaranteed financingsto 31 May 2010 (for financings with a maturity of less than12 months) resp. 30 June 2010 (for financings with a maturityof more than 12 months);(ii) advancing the expiry date of the guarantee on deposits(and equivalents) to 1 March 2010;(iii) a gradual increase of the remuneration payable by Dexia,pro rata temporis, if the outstanding amount of repaymentobligations guaranteed by the States exceeds certainthresholds (by 50bps if and to the extent the amount exceedsEUR 60 billion but not higher than EUR 70 billion, 65bps ifand to the extent the amount exceeds EUR 70 billion but nothigher than EUR 80 billion, and 80bps above EUR 80 billion).As at 30 June 2010, Dexia has fully exited the States'guarantee liquidity framework. All outstanding instrumentsissued under the government guarantee framework before30 June 2010 will continue to benefit from the governmentguarantee in accordance with their terms and conditions.184 Dexia Annual report 2010