HAA senior bonds drop on haircut speculation
LONDON, Dec 6 (IFR) - Hypo Alpe Adria's senior bonds have dropped by more than eight points in the last two days on speculation that investors might have to take a haircut on their holdings.
The 100% state-owned bank said at the end of November that it would need another EUR1.05bn of state aid in order to meet minimum capital requirements.
The leaders of Austria's two big parties, the central bank and the task force handling the ailing lender have ruled out letting Hypo Alpe Adria go bust for fear of undermining confidence in the eurozone country.
But newspapers have reported that some unnamed finance ministry officials favour the idea of a "voluntary" haircut on the bank's debt that would draw in unsecured creditors including former owner BayernLB. The Landesbank still has as much as EUR2bn of inter-company debt, according to a banker.
A Hypo Alpe Adria spokesman said: "The bank is not pursuing any such plans. We are also not informed or aware that the owner is doing so - what under present conditions would anyway be only possible on a voluntary basis."
But according to Tradeweb, a 4.25% October 2016 senior deal was quoted on Friday at a bid price of 90.30, down from over 98.5 on Wednesday. A 4.375% January 2017 bond, meanwhile, was trading at just under 90 from around 99 earlier in the week. Bid/offer spreads on both issues were more than two-and-a-half points.
Der Standard said one option could see Hypo bondholders, guaranteed by the home province of Carinthia, swap into new bonds guaranteed by the federal government. It mentioned an exchange of three old bonds for two new ones as "an example".
Debt bankers said that any haircut on senior debt would unlikely unsettle markets. "In the new world, everything is possible," said a syndicate official. "Given that we are moving to a world of bail-ins, I wouldn't rule it out."
He said he expected any potential impact to be localised, similar to what happened in Denmark when creditors were haircut in Amagerbanken on 2011.
Another senior banker added: "Anybody who does not know how bad things are at the bank has been living on another planet. I don't think investors would be surprised or freaked out."
ON THE HOOK
Backstops granted when late right-wing leader Joerg Haider ran Carinthia still covered nearly EUR14bn of Hypo liabilities at mid-year, including nearly EUR760m at the Austrian bank unit that it is selling to an investor.
Carinthia could not absorb the blow should the guarantees suddenly come due, so the federal government has said it could step in if needed even though the federal guarantee for these bonds is implicit rather than explicit.
The finance ministry wasn't immediately available to comment.
A Hypo spokesman said: "The bank is not pursuing any such plans. We are also not informed or aware that the owner is doing so - what under present conditions would anyway be only possible on a voluntary basis."
Resolving Hypo has been delayed while the country's two big parties try to negotiate a new coalition accord after Sept. 29 elections reduced their combined majority and strengthened the eurosceptic right.
Estimates of how much it could cost to wind down the bank have been as high as EUR17bn, a figure the Austrian central bank has denied.
The government had to take over Hypo in 2009 to avoid a collapse with regional implications after its unbridled growth fuelled by public guarantees from Carinthia drove it to the brink of insolvency. (Reporting by Michael Shields, Helene Durand, editing by Julian Baker)
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