Debt Relief

Austria Cuts a Deal with Heta Creditors

schelling-munsberg DPA-picture alliance-michael gruber
Austria's Finance Minister Hans Jörg Schelling (r) and Friedrich Munsberg (l), spokesman for the umbrella group of Heta creditors, meet at the HETA press conference in Vienna,
  • Why it matters

    Why it matters

    The Austrian government deal with creditors of “bad bank” Heta is needed to settle a dispute that risked the country’s first provincial bankruptcy.

  • Facts

    Facts

    • Hypo Alpe Adria was nationalized in 2009.
    • Austria’s previous offer to pay 82 percent of creditors’ claims was rejected.
    • Some 72 Heta creditors have agreed to the new compromise.
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  • Audio

    Audio

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Heta creditors have struck a preliminary deal with the Austrian government to settle a debt dispute that risked the country’s first provincial bankruptcy.

Under the agreement announced Wednesday, they agreed to a 10 percent reduction on €11 billion ($12.4 billion) of state-guaranteed debt, in a move that effectively grants debt relief to the province of Carinthia.

In previous negotiations, the creditors, mostly German banks and insurers, considered any form of debt relief to Carinthia to be taboo, arguing that the province was not unable but unwilling to to pay, and that the federal government could easily provide financial support.

Under the deal, they can expect about 90 percent of their loans to be covered, with a 13.5-year, zero-coupon bond payback offer as a sweetener.

The price of shares of creditor Deutsche Pfandbriefbank, or PBB, reacted to the preliminary agreement with a bounce, increasing by 3.5 percent. The compromise with Austria will provide PBB with an additional €132 million in cash.

Mr. Schelling can chalk up the agreement as a political victory, after three of his predecessors had failed to come to grips with the defunct lender.

“The path to an out-of-court settlement has been paved,” Austrian Finance Minister Hans Jörg Schelling told reporters. “A possible insolvency of Heta has been averted. We assume that we will reach the necessary approval rate of 66 percent.”

According to the Austrian Finance Ministry and Friedrich Munsberg, a spokesman for the creditor groups, 72 Heta creditors have already agreed to the compromise, representing €5 billion worth of the bank’s bonds.

Under the accord, the creditors will only receive 75 percent of the nominal value of senior notes and 30 percent for subordinated bonds, even with the new offer. But, as a sweetener, they can exchange their claims for a zero-coupon bearer bond from the Carinthia Settlement Payment Fund, with a maturity of 13.5 years and a guarantee from the federal government. Subordinate creditors can only exchange half of their claims for the new bond.

In addition to PBB and Commerzbank, the list of creditors includes NordLB, Düsseldorfer Hypothekenbank and Allianz subsidiary Pimco as well as Signal Iduna.

Not every one is happy with the deal, including chief negotiator Friedrich Munsberg of Dexia Kommunalbank, who was restrained in his remarks on the outcome. “We are not satisfied with the offer, but the majority of us accept it,” he said.

German creditors, he noted, had insisted on full repayment, adding that taxpayers in the country would now bear some of the loss.

Austria had initially offered 82 percent of the amount claimed by the creditors, an offer that derailed negotiations in March. In the end, however, most of the creditors apparently preferred a sure thing.

Mr. Schelling can consider the agreement as a political victory, after three of his predecessors failed to come to grips with the defunct lender. The deal enables Austria to get rid of a millstone hanging round its neck since Hypo Alpe Adria’s emergency nationalization in 2009.

Still unclear, however, is whether the agreement has eliminated the litigation between creditors and Heta in Frankfurt and Vienna.

Insiders at the Austrian finance ministry expect that the relevant agreements with the creditors will be signed in late September or early October. The European Commission’s approval is also required for a compromise.

Still unclear, however, is whether the agreement has eliminated the litigation between creditors and Heta in Frankfurt and Vienna. Mr. Munsberg declined to comment on the issue.

The coming weeks will reveal which creditors may not yet agree to Austria’s improved offer. One of them could be FMS Wertmanagement, the government liquidity agency for Hypo Real Estate, which, insiders say, is unwilling to sign the agreement in principle. FMS also declined to comment on the issue.

Carinthia is financing €1.2 billion of Austria’s new offer. The economically underdeveloped state will have to take on long-term debt to do so. The federal government will pay the rest.

 

Hans-Peter Siebenhaar is Handelsblatt’s correspondent in Vienna. To contact the author: siebenhaar@handelsblatt.com

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