December 26,2007 

Our Ref. No. 2007 122 1 1429 

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Dexia Municipal Agency 

DIVISION OF INVESTMENT MANAGEMENT File No. 132-3 

Your letter dated December 21, 2007 requests our assurance that we would not 

recommend enforcement action to the Securities and Exchange Commission (the 

"Commission") against Dexia Municipal Agency (the "Company") under section 7 of the 

Investment Company Act of 1940 (the "1940 Act") if the Company issues covered bond 

debt instruments in the United States through private offerings without registering under 

the 1940 Act. 

Facts 

You state the following: The Company, a wholly owned subsidiary of Dexia 

Credit ~ocal,' is organized as a SociCtCs de Credit Foncier (SCF) as authorized under 

French law. The special purpose of the Company is to provide for the financing needs of 

public sector entities through the issuance of obligations foncikres, which are covered 

bond debt instruments. An SCF uses the proceeds of the bond offerings to provide loans 

and financing to central (i.e. national) governments, central banks, government local 

authorities (i.e. municipalities and departments) and other public sector entities in the 

European Union. While the French government does not guarantee an SCF7s bonds, the 

law creating SCFs grants special privileges to holders of bonds issued by SCFs. 

Specifically, bondholders have priority over creditors (including the government) of the 

SCF and of the SCF's parent; the bankruptcy or liquidation of the parent company cannot 

be extended to the SCF itself. 

While the Company is a credit institution licensed and supervised by the French 

banking authority, as an SCF it is prohibited from taking demand deposits. In addition, 

1 You state that Dexia Credit Local ("DCL") is a traditional commercial bank 

exempt from the requirements of the 1940 Act. DCL sought and received a Commission 

order under section 6(c) of the 1940 Act permitting it to issue and sell certain commercial 

paper and debt instruments in the United States. Credit Local De France, Investment 

Company Act Rel. Nos. 18249 (Jul. 24, 1991) (notice) and 18286 (Aug. 22, 1991) (order). 

The French government owns 11 -8% of Dexia SA, the holding company that ultimately 

controls DCL and the Company. 
French law and the Company's by-laws restrict the Company to stringent requirements 

regarding the type of assets (substantially public sector loans), amount of each type of 

asset, and ratio of assets and liabilities it may keep on its balance sheet2 

As of calendar year-end 2006, 89.05% of the Company's assets were in loans 

made to, or bonds issued by municipalities, sovereign states and other public sector 

entities or private companies guaranteed by local governments. Of this amount, 80.89% 

were loans and 8.16% were bonds. Approximately 3.65% of the Company's assets were 

in funds that invested 100% of their eligible assets in loans to public entities or in shares 

of funds that are 100% guaranteed by public entities, and the remaining 7.30% of assets 

was in liquid paper, short-term receivables and covered bonds issued by other Dexia 

entities. 

The Company's outstanding loans to regional governments, municipalities and 

other public sector entities are for investment in special projects primarily related to 

construction and renovation. In particular, European municipalities and other European 

public sector entities, which compose over 94% of the Company's outstanding 

commitments at year-end 2006, are forbidden by national law to use their loans from the 

Company for general and administrative expenditures and are only allowed to borrow for 

investments in projects and renovations as specified in their budgets. The funds 

committed by the Company must be used by the borrowers for specific investment 

projects as a result of the general legal prohibitions and budgeting process to which the 

borrowers are subject, the monitoring and verification of which is dealt with by 

governmental authorities. Loans on the balance sheet at the end of 2006 were used, 

among other things, to finance public buildings and town halls, hospitals, sewer systems, 

regional express trains and local roads. When a loan is intended to finance a significant 

project (x a hospital), the specific project frequently is named in the loan 

documentation. 

The Company intends to issue and sell its covered bond debt instruments in the 

United States through private placements, including but not limited to placements 

pursuant to rule 144A under the Securities Act of 1933. The Company is concerned that 

these offerings could cause it to be required to register as an investment company under 

the 1940 Act. 

2 An SCF may hold only (i) loans to, or fully guaranteed by, municipalities, 

sovereign states or other public entities and bonds issued by such entities, (ii) 

participations in funds that invest at least 90% of their assets in the same and (iii) liquid 

paper issued by banks and other credit institutions, short-term debt receivables and 

covered bonds issued by other entities that serve as "replacement securities" for loan 

collateral. The amount held in the last category is limited to up to 15% of outstanding 

obligations foncikres (and other liabilities benefiting from the same privileges). French 

law also requires over-collateralization: the total amount of assets always must be greater 

than the amount of liabilities benefiting from obligations foncikres privileges. 
Analysis 

Section 3(c)(5)(B) of the 1940 Act, in relevant part, excepts from the definition of 

investment company: 

Any person who is not engaged in the business of issuing redeemable 

securities . . . and who is primarily engaged in . . . making loans to manufacturers, 

wholesalers, and retailers of, and to prospective purchasers of, specified 

merchandise, insurance, and services. . . . 

You argue that the Company is primarily engaged in the business of making loans 

to municipalities and other public sector entities to finance construction and renovation 

projects. You argue that the municipalities are prospective purchasers of specified 

merchandise and services. You argue that your request for no-action relief presents facts 

and circumstances that are similar to those that we addressed in Municipality Finance Ltd. 

(pub. avail. Apr. 28, 1994). You also argue that investors in the Company's covered 

bond debt instruments do not need the protections pr0vided.b~ the 1940 Act in light of (a) 

the private nature of the U.S. offerings; and (b) the special privileges associated with the 

covered bond debt instruments (i.e. priority over creditholders granted to bondholders 

and the SCF's protection from the bankruptcy of its parent). 

On the basis of the facts and representations set forth in your letter, we would not 

recommend enforcement action to the Commission against the Company under section 7 

of the 1940 Act if the Company does not register as an investment company. This letter 

expresses our position on enforcement action only and does not express any legal 

conclusions on the issues presented. Because our position is based on the facts and 

representations in your letter, you should note that any different facts or representations 

may require a different conclusion. 

Sara P. -Crovitz 

Branch Chief 
DAVIS POLK 6r WARDWELL 

212 4 5 0 4 0 0 0 

FAX 2 1 2 4 5 0 3 8 0 0 

MENLO PARK 

WASHINGTON, D.C. 

LONDON 

PARIS 

FRANKFURT 

MADRID 

TOKYO 

BEIJING 

HONG KONG 

December 2 1,2007 

Re: 1940 Act: Section 3(C)(5)(B) 

Mr. Doug Scheidt 

Office of the Chief Counsel 

Division of Investment Management 

Securities and Exchange Commission 

100 F Street, NE 

Washington, D.C. 20549 

Dear Mr. Scheidt: 

We represent Dexia Municipal Agency (the "Company"), a French credit 

institution which acquires and grants loans to municipalities and other public 

entities. The Company issues covered bond debt instruments called obligations 

fonci8res. The Company is contemplating offering these debt instruments in the 

United States through private offerings. On behalf of the Company, we request a 

no-action letter with respect to the status of the Company and the proposed 

offering under the Investment Company Act of 1940 (the " 1940 Act"). 

I. Background 

The Company is organized as a Sociitis de Cridit Foncier ("SCF") as 

authorized under French law. It is a wholly-owned subsidiary of Dexia Credit 

Local ("DcL"),' a traditional commercial bank that is exempt from the 

requirements of the 1940 ~ct.~ The special purpose of the Company is to provide 

' DCL owns 100% of the equity of the Company. The Supervisory Board of the 

Company is nominated and elected by DCL, and in turn, the Executive Board is nominated by the 

Supervisory Board. Thus, DCL has total control of the Company. 

Through its financing arm and pension fund manager, Caisse des DCpSts et Consignation, 

as of calendar year-end 2006 the French government owns 11.8% of Dexia SA, the holding 

company that ultimately controls DCL and the Company. 

DCL is fully authorized to operate as a commercial bank in France by the French 

banking authority. However, DCL limits its activities to local public and project finance, and it 

does not take individual demand deposits. For thls reason it sought and received an SEC 

exemptive order pursuant to section 6(c) of the 1940 Act. In re. Credit Local de France and CLF 
for the financing needs of public sector entities, through the issuance of covered 

bonds.3 An SCF uses the proceeds of the bond offerings to provide loans and 

financing to central (i.e. national) governments, central banks, government local 

authorities (i.e. municipalities and departments) and other public sector entities in 

the European ~nion.~ 

While the French government does not guarantee an SCF's bonds, the 

1999 law creating SCFs grants special privileges to holders of bonds issued by 

SCFs. In particular, SCFs are the only companies that can issue obligations 

foncigres. These obligations foncigres, which benefit under French law from 

preference benefits, give bondholders priority over creditors (including the 

government) of the SCF and of the SCF's parent; the bankruptcy or liquidation of 

the parent cannot be extended to the SCF itself. 

While the Company is a credit institution (etablissement de cridit) 

licensed and supervised by the French banking authorityY5 it has more specifically 

been licensed as an SCF since 1999. Being an SCF limits the operations of the 

Company; in particular, unlike a commercial bank, the Company is prohibited by 

law from taking demand deposits. The French SCF law and the Company's bylaws restrict the Company to stringent requirements regarding the type of assets 

(substantially public sector loans), amount of each type of asset, and ratio of 

assets and liabilities it may keep on its balance sheet. 

As of calendar year-end 2006, 89.05% of the Company's assets were in 

loans made to, or bonds issued by, municipalities, sovereign states and other 

public sector entities or private companies guaranteed by local governments. Of 

this amount, 80.89% were loans and 8.16% were bonds. 3.65% of the Company's 

Finance Co. (August 22, 1991). Other banking subsidiaries of the Dexia Group do take demand 

deposits. 

Under French law, SCFs may also grant or acquire mortgage loans. The Company's 

exclusive corporate purpose is granting or acquiring loans to public sector entities; hence, it does 

not participate in granting or acquiring mortgage loans. 

As set forth in EU Directive 2006148lCE article 68(a), (b), (c) pages 177189. 

Specifically the Comitt des Etablissement de Crtdit et des Entreprises d'Investissement 

and the Commission Bancaire. 

An SCF may only hold (i) loans to, or fully guaranteed by, municipalities, sovereign 

states or other public entities and bonds issued by such entities, (ii) participations in funds that 

invest at least 90% of their assets in the same and (iii) liquid paper issued by banks and other 

credit institutions, short-term debt receivables and covered bonds issued by other entities that 

serve as "replacement securities" for loan collateral. The amount held in the last category is 

limited to up to 15% of outstanding obligations foncieres (and other liabilities benefiting from the 

same privileges). French law also requires over-collateralization: the total amount of assets must 

always be greater than the amount of liabilities benefiting from obligations fonci2res privileges. 

Due to these strict requirements, French law mandates that the Company have a special 

controller appointed from a list of certified accountants (with agreement from the French banking 

authority) that monitors the Company for compliance with the law. 
assets were in funds that invested 100% of its eligible assets in loans to public 

entities or in shares of funds that are 100% guaranteed by public en ti tie^.^ The 

remaining 7.30% of assets were in liquid paper, short-term debt receivables and 

covered bonds issued by other Dexia entities. 

Due to elements of French bankruptcy law granting employees priority in 

bankruptcy, an SCF requires a separate French commercial bank to carry out its 

operations. Specifically, a separate commercial bank and its employees must 

perform all of the operations of the SCF so that priority to holders of obligations 

fonci8res, bankruptcy remoteness and other privileges can be implemented under 

the law. The commercial bank that carries out all of the Company's operations is 

its parent, DCL. The Company has no salaried employees of its own, and all 

employees executing the operations of the Company are full-time employees of 

DCL. 

11. Section 3(c)(5)(B) Exemption 

Section 3(c)(5)(B) of the 1940 Act exempts from the definition of (6. investment company": 

any person who is not engaged in the business of issuing 

redeemable securities, face-amount certificates of the installment 

type or periodic payment plan certificates, and who is primarily 

engaged in . . . (B) making loans to manufacturers, wholesalers, and 

retailers of, and to prospective purchasers of, specified 

merchandise, insurance, and services. . . ." 

In Municipality Finance Ltd. (Available April 28, 1994), the Staff 

considered application of Section 3(c)(5)(B) to Municipality Finance Ltd. 

("Municipality Finance"), a company that provided financing to Finnish 

municipalities, under similar facts to those presented here. Like the Company, 

Municipality Finance provided loans to municipalities and to companies whose 

loans were guaranteed by a municipality. 

The Municipality Finance letter stated that Municipality Finance was 

primarily engaged in the business of making loans to municipalities to finance 

construction and renovation projects; thus, the municipalities were prospective 

purchasers of specified merchandise and services in keeping with Section 

3(c)(5)(B) requirements. 

Likewise, the Company's outstanding loans to regional governments, 

municipalities and other public sector entities are for investment in special 

projects primarily related to construction and renovation. In particular, European 

municipalities and other European public sector entities, which compose over 

Under the Company's own restrictions, the funds in this category must meet the more 

stringent requirement of 100% of eligible assets invested in public entities rather than 90% as 

required by French SCF law. 
94% of the Company's outstanding commitments at year-end 2006, are forbidden 

by national law to use their loans from the Company for general and 

administrative expenditures and are only allowed to borrow for investments in 

projects and renovations as specified in their budgets. When a loan is intended to 

finance a significant project (e.g. a hospital) the specific project is frequently 

named in the loan documentation. The funds committed by the Company must be 

used by the borrowers for specific investment projects as a result of the general 

legal prohibitions and budgeting process to which the borrowers are subject, the 

monitoring and verification of which is dealt with by governmental authorities. 

For example, loans on the balance sheet at the end of 2006 were used, among 

other things, to finance public buildings and town halls, hospitals, sewer systems, 

regional express trains and local roads. Thus, in a similar manner to Municipality 

Finance, the Company's loans are not general loans and meet the requirement of 

being made to prospective purchasers of specified merchandise and services for 

the purposes of Section 3(c)(5)(B). 

The Company intends to issue and sell covered bonds in the United States 

through private placements, including but not limited to Rule 144A, in all cases to 

sophisticated investors, such as qualified institutional investors or accredited 

investors, all of whom the Commission has previously determined do not require 

the same level of protections under the 1940 Act or the Securities Act of 1933 as 

would be the case if retail investors were involved. Therefore, as a result of the 

type of investors that the Company proposes to target, the special protections 

accorded by the national laws to covered bonds and the specific nature of its loans 

as described above, we do not believe that the investor protections of registration 

under the 1940 Act are necessary or desirable here. 

On behalf of the Company, we request the assurance of the staff of the 

Division of Investment Management that it would not recommend enforcement 

action to the Securities and Exchange Commission under Section 7 of the 1940 

Act if the Company issues covered bond debt instruments in the United States 

through private placements without registering under the 1940 Act. 

Please call the undersigned at (2 12) 450-4684, James Zha at (2 12) 450- 

4561 or Margaret E. Tahyar at 01 1-33-1-56-59-36-70 if you have any questions. 

Very truly yours, 

Nora M. ~odlan 

cc : Jean-Claude S ynave