Heta Creditors Say They Form Critical Mass to Block Debt Cut

  • Holders of 5 billion euros of bonds join forces to halt deal
  • Austrian plan to defuse provincial guarantees at risk

Creditors in Heta Asset Resolution AG say they have enough support to block a 11 billion-euro bond deal that would force them to take losses to rescue the Austrian “bad” bank’s indebted home province.

Opponents of the deal -- including Commerzbank AG, Dexia SA’s German unit and Deutsche Pfandbriefbank AG -- issued a statement Wednesday saying they collectively hold more than 5 billion euros ($5.5 billion) of Heta bonds guaranteed by the province of Carinthia. That would leave less than the required two-thirds participation in the planned offer, to be launched as soon as next week.

“An offer below par doesn’t reflect Carinthia’s assets and its ability to serve debt,” the creditors said in the German version of the statement. “Creditors, however, signal their readiness to talk and to end the situation that’s unsatisfactory for both sides.”

Heta is managing the remnants of Hypo Alpe-Adria-Bank International AG, one of the most damaging Austrian bank failures after the 2008 financial crisis. Austria was forced to spend billions of euros to prop up Hypo Alpe after it nationalized the bank in 2009, angering voters and undermining the country’s credit ratings.

Carinthia province, which owned the bank until 2007 and guaranteed its debt issued before that, said last month it can contribute 1.2 billion euros to the bond offer. Adding in money expected to be recovered in Heta’s wind-down, the offer could be made at 66 percent to 70 percent of face value, Berenberg Bank analysts led by Philipp Jaeger have said.

Carinthia’s guarantees on Hypo Alpe’s debt still amount to several times its annual budget. They have complicated Hypo Alpe’s wind-down because sharing the losses with bondholders would lead to significant claims against the province.

The creditors’ refusal to take losses on the bonds isn’t new, Carinthia’s finance secretary, Gaby Schaunig, said in a statement. "The bond buyback offer will be within the legal framework."

Heta’s two most-liquid bonds both trade at around 67 cents on the euro, according to prices compiled by Bloomberg. The majority are held by German banks, most of whom were told by regulators to write them down to 50 percent.

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