Austria Set to Close Heta Chapter as Creditors on Track for Deal

  • Three quarters of senior creditors take deal, Schelling says
  • Acceptance may rise even further until Friday deal deadline

Austria may soon be able to close the book over its worst postwar bank failure.

Creditors of bad bank Heta Asset Resolution AG have accepted a discounted offer for their bonds in sufficient numbers for the deal to go ahead before a deadline expires this week, Finance Minister Hans Joerg Schelling told journalists on Tuesday. With about 75 percent of senior creditors and half of junior note holders declaring they’ll accept the offer for 11 billion euros ($12.3 billion) of debt, the deal could be imposed on holdouts.

Hans Joerg Schelling

Photographer: Akos Stiller/Bloomberg

“We’re getting additional deliveries every day and I expect some bigger ones by the end of the period on Friday, so that we’ll be able to exceed the quorums,” Schelling said. “I’m happy with any result that’s above the threshold.”

Austria has been trying since last year to draw a line under years of taxpayer-funded bailouts of Heta and its predecessor, Hypo Alpe-Adria-Bank International AG. A special purpose vehicle of the Carinthia province offered to buy Heta’s publicly guaranteed bonds at a discount. After the mostly-German investors fiercely opposed the deal, Schelling improved the terms. Senior creditors are now due to lose 10 percent of the face value, while junior creditors lose around 55 percent.

Under the terms of the deal, creditors can choose to receive zero-coupon bonds in exchange for their Heta debt. Senior bonds, which make up the vast majority of the offer, can be swapped for a security with a net present value of 90 cents on the euro. At the current interest rate level, that means the bond would have a maturity of about 18 years.

Holding Period

Austria also promised bondholders who choose the zero coupon security to buy it back after a holding period that ends on Dec. 1, according to the offer document. That means creditors, who often wrote down the value of their senior Heta debt by half, can either liquidate the zero bonds before the end of the year or keep them on their books.

Junior creditors, among which Austria had to reach a quorum of at least 25 percent, will be offered a reduced amount of the same zero bonds, or Schuldschein loans, with both offers having a net present value of 45 percent of their bonds nominal value.

The offer became necessary after Carinthia, with an annual budget of less than 3 billion euros, said it wouldn’t honor the debt guarantees it had issued for Heta’s predecessor, Hypo Alpe. The province will now contribute 1.2 billion euros to fund the deal.

“With the successful buyback offer, the inglorious Heta issue comes to a preliminary close for the majority of participants,” Berenberg analysts led by Philipp Jaeger said in a note to clients. The solution “may contribute to restore the tarnished reputation of Austria’s financial marketplace.”

German bad bank FMS Wertmanagement AoeR was the latest Heta creditor to publicly accept Austria’s offer. Other prominent investors, including Commerzbank AG and Pacific Investment Management Co., had already signed up to a memorandum of understanding earlier this year.

The official acceptance period for Carinthia’s Heta offer still runs until Oct. 7. The final acceptance will be published the following Monday, on Oct. 10.

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