Austria Approves $385 Million Loan Keeping Heta Province Afloat

Austria’s Finance Minister Hans Joerg Schelling said he approved an agreement with Carinthia over a 343 million-euro ($385 million) loan which the province needs to avoid an immediate insolvency.

Carinthia’s local government still has to agree to the terms and a final decision could be taken on Tuesday, Schelling told journalists before a government meeting in Vienna. The loan will be provided by the Austrian Treasury at “relatively good” conditions, he said, without elaborating.

“This is about securing Carinthia’s operations and public institutions like kindergartens, schools and hospitals,” Schelling said. “This isn’t about Carinthia’s debt.”

The Austrian province lost market access when Moody’s Investors Service cut its credit rating by four levels to Baa3, one level above junk, in March. The move followed Austria’s decision to wind down and impose a debt moratorium on former state-owned lender Heta Asset Resolution AG, which has 10.2 billion euros of its liabilities guaranteed by Carinthia. The province has 2.4 billion euros budgeted revenue this year.

While Schelling said the federal government won’t assume responsibility for Carinthia’s guarantees, he ruled out an insolvency of the province during the course of the debt moratorium, which ends in May 2016. Austria’s FMA regulator and Carinthia should now engage in talks with creditors of Heta over how to deal with the debt burden, he said.

A possible debt deal on Carinthia’s guarantees hinges on clarity about the debt reduction Heta’s creditors face in the wind-down, Schelling said in an interview last month. He reiterated that he’s ready to support such a deal.

Shut-Down Contribution

The FMA supervisor, which took control of Heta’s dismantling in March and ordered the moratorium, said it will probably need another year to evaluate Heta’s assets and draft a wind-down plan. Those results are needed to calculate how much creditors have to contribute to the bad bank’s shut-down, co-President Klaus Kumpfmueller told journalists on Tuesday.

Kumpfmueller and the FMA’s other president, Helmut Ettl, declined to make estimates about the size of a possible shortfall. An audit commissioned by Heta found the hole to be in the range of 4 billion euros to 7.6 billion euros, with the “most realistic” scenario being a 4.6 billion-euro deficit.

A spokesman for Carinthia’s government didn’t immediately reply to an e-mail and a phone call asking for comment.

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