Heta Wins Time as Austria Stalls German Bondholder Cases

  • Frankfurt court cancels ruling, schedules new hearing June 9
  • Austria's FMA asks to halt cases or send it to European court

Bad bank Heta Asset Resolution AG won a reprieve as a Frankfurt court canceled the planned final ruling in a case seeking bond repayment after Austria’s financial watchdog stalled the case.

Presiding Judge Stefanie Klinger, who was due to announce the court’s ruling on Friday in a suit brought by German bad bank FMS Wertmanagement AoeR, instead scheduled a new hearing for June 9. Austria’s FMA watchdog, which oversees Heta’s wind-down, requested to stay the case and 10 similar ones demanding 2.3 billion euros ($2.6 billion) in total, citing European Union bank resolution rules.

Heta, which collapsed under bad loans in the former Yugoslavia, is the first bank wound down under the EU’s Banking Recovery and Resolution Directive. The FMA’s move illustrates the wide-ranging powers the rules give to authorities, including ordering debt cuts bypassing regular insolvency laws and interventions in court proceedings.

Judge Klinger said in a February court hearing that in the court’s view the rules may not apply to Heta bonds issued in Germany because the bank was set up to wind down the assets of failed bank Hypo Alpe-Adria-Bank International AG, and had already relinquished its bank license.

Same Argument

If the FMA’s request to interrupt the case is rejected based on that same argument, the Austrian authority asked the court to expedite the dispute directly to the EU Court of Justice, FMA spokesman Klaus Grubelnik said by telephone. Identical requests went to the Frankfurt panels where the other cases are pending and were sent earlier this week, he said.

“We expect that, according to European Union law, the debt moratorium is recognized in Germany too,” said Stefan Ruetzel, a lawyer at Gleiss Lutz representing Heta.

A ruling in favor of creditor FMS, which demands repayment of 200 million euros, could have triggered Heta’s immediate insolvency and would be bad for all other creditors, Heta Chief Executive Officer Sebastian Schoenaich-Carolath told Handelsblatt in an interview published today. The FMA’s third request to the court was not to allow FMS to execute its claim immediately, the normal procedure in German insolvency cases.

The case is a clash between the two entities managing Austria’s and Germany’s worst banking failures. Heta’s predecessor helped Austria lose two AAA credit ratings and is threatening Carinthia with insolvency. FMS is the bad bank of Hypo Real Estate Holding AG.

FMS spokesman Andreas Henry declined to comment.

The ruling comes one week after an offer by the Austrian province of Carinthia failed to buy back Heta’s bonds for 75 percent of face value. Carinthia, Hypo Alpe’s former owner, still guarantees 11 billion euros of Heta’s debt.

Today’s case is: LG Frankfurt am Main, 2-12 O 114/15.

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