Heta Bad Bank Bonds Climb as Austria Shows Willingness to Settle

  • Province seeks solution over $12.5 billion debt guarantees
  • Former state bank's notes climb to highest level since 2014

Bonds of Heta Asset Resolution AG jumped to the highest level since 2014 after the Austrian province that guarantees the debt said it’s ready to open creditor negotiations less than a month after its discounted debt tender failed.

Heta’s most liquid securities, a 2 billion-euro ($2.27 billion) 4.375 percent bond due 2017 and a 1.25 billion-euro 4.25 percent bond due this year, rose more than 6 percent and were quoted at around 76 cents on the euro, according to prices compiled by Bloomberg. Both were quoted at their highest level in 16 months.

Heta’s creditors last month rejected an offer for the bonds in which the Carinthia province offered 75 percent of face value for senior securities. The province guaranteed Heta’s debt issued when it owned its predecessor, Hypo Alpe-Adria-Bank International AG. Now it says it can’t compensate creditors for what they’re set to lose in the bad bank’s wind-down.

Carinthia’s officials and Austrian Finance Minister Hans Joerg Schelling initially said there will be no second offer as they had exhausted all legal possibilities. Gaby Schaunig, Carinthia’s finance secretary, changed course on Wednesday following a meeting with Schelling, saying that she’s ready to review a recent proposal sent by creditors.

Heta’s biggest creditors, which include Commerzbank AG, Pacific Investment Management Co. and Dexia SA’s German unit, said via a spokeswoman that they see this step as a “positive signal”. They declined to elaborate on their proposal.

Peter Kaiser, Carinthia’s governor, told local lawmakers on Thursday that with the help of federal funding, it’s possible that a solution can be negotiated, and that an out-of-court settlement would be better than legal proceedings with an uncertain outcome, according to a Carinthian government spokeswoman.

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