Bloomberg News

Yields Climb on New York Mortgage Muni Bonds Backed by Dexia

October 04, 2011

Oct. 4 (Bloomberg) -- Yields on New York state mortgage agency bonds backstopped by Dexia SA rose as much as 0.75 percentage point on concern that the Brussels-based bank hasn’t written down enough of its holdings of Greek government debt.

The daily yield of a New York floating-rate mortgage- revenue bond maturing in 2037 jumped to 2.75 percent today from 2 percent yesterday, according to data compiled by Bloomberg. Interest costs on similar securities also backed by so-called standby purchase agreements from Dexia have risen as much as 1.25 percentage points since last week. Under such arrangements, the bank guarantees to be a buyer of last resort for the debt.

“Yields have definitely adjusted up,” said Dan Solender, the head of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey.

The French and Belgian governments pledged to support Dexia after shares of the bank fell 22 percent in Brussels on concern that Europe’s sovereign-debt crisis has reduced the lender’s ability to obtain funding. Dexia guarantees $13.4 billion of U.S. municipal bonds, according to data compiled by Bloomberg.

Marian Zucker, president of the office of finance and development at New York’s Home and Community Renewal Agency, didn’t immediately respond to a request for comment.

Breakup Weighed

Company directors met yesterday to weigh a breakup of the company, including creating a “bad bank” for troubled assets, according to people with knowledge of the talks, who declined to be identified because the negotiations are private. Options for Dexia will be the focus of a Belgium cabinet meeting late today in Brussels. Both the French and Belgian governments own stakes in the bank, which was bailed out in 2008.

Moody’s Investors Service put Dexia’s three main operating units on review for a downgrade yesterday on concern the lender was struggling to maintain liquidity amid “worsening funding conditions in the wider market.”

Investors didn’t demand higher yields for all municipal bonds backed by Dexia standby purchase agreements. Yields on Oregon floating-rate bonds that refinanced debt issued to fund mortgages for veterans and reset daily have held at 0.5 percentage point since Sept. 22, according to data compiled by Bloomberg. The debt has the state’s general-obligation pledge.

Similarly, yields on $150 million of debt issued by the Las Vegas Valley Water District in Nevada have remained at 2.5 percentage point since Sept. 14.

Issuers such as Oregon and Las Vegas might have an easier time getting other banks to step in and provide a backstop if they needed to, Solender said.

Dexia posted a 4 billion-euro ($5.3 billion) loss for the second quarter, its largest ever, after writing down the value of its Greek debt. Once the world’s biggest municipal lender, the bank received a 6 billion-euro bailout from Belgium, France and its largest shareholders in September 2008, following the collapse of Lehman Brothers Holdings Inc.

--With assistance from Fabio Benedetti-Valentini in Paris and John Martens in Brussels. Editors: Ted Bunker, Jerry Hart.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.


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