Austria’s finance minister said that creditors in a failed regional lender would not get better terms after they rejected a proposal to buy back their bonds, a decision that leaves the threat of insolvency hanging over an Austrian province.
The impasse could lead to lengthy court proceedings between the southern Austrian province of Carinthia and creditors who include German-owned groups such as Commerzbank and Pimco.
Carinthia says it cannot afford to honour €10.8bn ($12bn) in guarantees it made for the debt of local lender Hypo Alpe Adria when far-right politician Joerg Haider was its governor.
Hypo subsequently collapsed and Heta was formed to wind it down. The amount that will be recovered from Heta’s assets is expected to fall well short of the bonds’ full face value, and creditors could sue the province for the rest.
Austrian Finance Minister Hans Joerg Schelling, who agreed to lend Carinthia the money for the rejected offer, ruled out a new proposal.
“We have always said there will be no further offer in this matter,” Schelling told a news conference yesterday, adding that Heta would now be wound down and the related court cases could take as long as 10 years.
“If Carinthia negotiates with the creditors, which I personally do not assume will be the case ... that is of course legitimate for Carinthia,” he said. “Should a solution emerge, we will have to think about whether we take part or not.”
Carinthia made a €7.8bn buyback offer before the Austrian government added a late sweetener to try to secure the required two-thirds majority of creditors required for the buyback to take effect.
The offer, including the sweetener, amounted to roughly 82% of face value for senior bonds, the bulk of the paper. An alliance of creditors that says it controls roughly half the Heta bonds, however, wants full repayment.
The Carinthian Settlement Payment Fund (KAF) confirmed yesterday that creditors holding less than two thirds of the bonds had accepted Carinthia’s offer. The KAF and Carinthia’s finance chief did not say what the acceptance rate was.
The case has become a political and financial millstone for Carinthia and the national government, which wants to see the standoff with creditors resolved but has pledged not to pour any more public funds into Heta, which has already cost billions.
The head of the provincial government said his preference was for an out-of-court settlement.
“In any case we as a province are prepared to do anything that helps end this situation,” Carinthia’s Governor Peter Kaiser said in an interview with Austrian broadcaster ORF.
Insolvency remains a distant prospect for Carinthia, a province of roughly 560,000 people that borders Slovenia and Italy. Estimates of how much could be recovered from it in insolvency proceedings vary widely.
No province in Austria has gone bankrupt before and there is no law governing that specific situation, creating a great deal of legal uncertainty.