October 10, 2017 / 4:08 PM / 10 months ago

Fitch Affirms KAF Kaerntner Ausgleichzahlungs-Fonds' Zero Coupon Bonds at 'AA+'

(The following statement was released by the rating agency) FRANKFURT/LONDON, October 10 (Fitch) Fitch Ratings has affirmed KAF Kaerntner Ausgleichszahlungs-Fonds' (KAF) zero-coupon bonds (XS1484645616 and XS1484645533) with an aggregate principal amount of EUR10.3 billion, due 14 January 2032, at 'AA+'. The zero-coupon bonds are explicitly, unconditionally and irrevocably guaranteed by the Republic of Austria (Austria; AA+/Stable). The affirmations reflect no changes to the guarantee mechanism nor dilution of support from the guarantor. KEY RATING DRIVERS The ratings on the zero-coupon bonds are equalised with that of Austria as the obligations under the guarantee constitute the sovereign's direct, unsecured, unconditional, irrevocable and unsubordinated debt. They also rank pari passu with the sovereign's all other unsecured and unsubordinated loan or bond indebtedness, except for obligations ranking in priority pursuant to mandatory provisions of law. KAF was established by the KAF Law in November 2015. It is a special purpose vehicle created by the Province of Carinthia (Carinthia) to acquire HETA Asset Resolution AG's (HETA) bonds that are guaranteed by Carinthia and the Holding Company of Carinthia (Kaerntner Landesholding). KAF was formed to take on risks stemming from liabilities assumed by Carinthia and the Holding Company of Carinthia through bond acquisition. The SPV also ensures Carinthia and its legal bodies have the capacity to carry out their designated tasks and prevent serious damage to the national economy. KAF submitted a tender offer to all HETA creditors on 6 September 2016 to acquire certain debt instruments of HETA. According to the offered tender HETA creditors were given the option either to settle their holdings by cash or to exchange for the zero-coupon bonds issued by KAF. The cash settlement option offered to acquire HETA's bonds at a haircut. This corresponded to 75% of senior creditors' outstanding nominal claims of EUR10.2 billion and 30% of subordinated creditors' outstanding nominal claims of EUR0.9 billion. The zero coupon bond exchange option offered senior creditors to exchange their HETA instruments for the zero coupon bond at a conversion rate of 1 to 1. Subordinated creditors had the option to exchange their HETA instruments for either a zero coupon bond at a conversion rate of 1 to 2 or unsecured assignable loans issued by Austria at a ratio of 1 to 1. As some of the subordinated creditors chose the second option, such a loan was issued as well. The tender offer was subject to the approval of a minimum of 25% of senior creditors and 25% of subordinated creditors, and two-thirds of all classes. To date, 99.55% of senior creditors and 89.42% of subordinated creditors and 98.71% of all classes have accepted the offer, so that the tender offer was successfully completed. The zero coupon bond had a repurchase commitment of the KAF. This means the issuer granted the beneficial owners of the bonds the right to require the issuer to repurchase the bonds at a fixed repurchase price calculated on a daily basis. The 180-day repurchase period started 1 December 2016 and ended 30 May 2017. On 30 May 2017, KAF repurchased zero coupon bonds with a nominal amount of EUR9,195,556,007 (89.24% of the zero coupon bond proceeds outstanding). To fund the repurchase, KAF issued bonds guaranteed by OeBFA (Oesterreichische Bundefinanzierungsagentur Ges.m.b.H.), Austrian's Treasury. RATING SENSITIVITIES An upgrade of the ratings of Austria would result in a similar rating action on the bonds, provided the guarantee remains unchanged. A negative rating action on Austria will be reflected in the rating of the bonds. Dilution of support from the guarantor as well as a change in or termination of the guarantee will result in a review of the rating of the bonds. Contact: Primary Analyst Guido Bach Senior Director +49 69 768076 111 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 D-60311 Frankfurt am Main Secondary Analyst Nilay Akyildiz Director +49 69 768076 134 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 2405 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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