Standard & Poor's yesterday downgraded the core entities of Dexia SA to A-plus from AA-minus, while the government of Belgium continued to reiterate its support for the bank.

"We will take responsibility, as we did in case of Fortis [NA]," Belgian Prime Minister Yves Leterme said in a television interview, according to Reuters. "Above all ... people should remain calm. There is absolutely no reason to withdraw deposits. Dexia is a healthy bank."

Along with France, Luxembourg, and institutional investors, Belgium last week injected $9.2 billion of capital into the bank. Dexia serves as one of the largest providers of credit enhancement in the U.S. municipal market and is also the parent of bond insurer Financial Security Assurance Inc.

"The downgrade reflects the negative impact that current turbulent market conditions are having on Dexia's financial profile, mainly in terms of revenues and access to funding," Standard & Poor's credit analyst Taos Fudji said in a statement. "In our view, Dexia's recent difficulties have also weakened the group's business franchise."

In addition, Fitch Ratings yesterday affirmed the short-term ratings on FSA-insured transactions where Dexia Credit Local provides bank liquidity. On Oct. 1, a forbearance agreement between FSA and Dexia modified when the bank could terminate a standby bond purchase agreement.

"In this agreement, Dexia agrees that it will not exercise its right to automatically and immediately terminate or suspend its obligation to purchase bonds without a final tender based solely on credit events related to FSA," Fitch said. "The purchase obligation will continue in full force and effect unless there is also a termination event related to an underlying obligor."

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