* 75 pct of senior, 50 pct of junior bondholders agreed so
* State to pre-finance major part of the payout
* Austria among first to force creditors to take hit
(Adds details on financing, governor, background)
By Kirsti Knolle
VIENNA, Oct 4 Enough creditors in failed lender
Hypo Alpe Adria have supported a bond buyback offer
for the deal to proceed, Austria's finance minister said on
Tuesday, drawing a line under the country's worst postwar
Two years after "bad bank" Heta Asset Resolution
was created to wind down Hypo Alpe's toxic assets, Austria hopes
the hard-won agreement will restore its credibility with foreign
investors and close a painful chapter of financial overreach.
It comes at a price -- the finance ministry is prepared to
provide around 8 billion euros ($8.9 billion) for the initial
payout, money it expects to recoup from asset sales.
The deal is seen as a test case for European efforts to
involve investors in the clean-up of failed banks, rather than
leaving the burden entirely with taxpayers.
The southern province of Carinthia, which guaranteed bonds
with a nominal value of 11 billion euros ($12 billion) issued by
Hypo but was unable to pay in full, offered to buy them back at
But a long-running standoff over terms ensued with
bondholders -- around 70 percent of them German banks and
insurers including Deutsche Bank, Commerzbank
, Pimco and Dexia Kommunalbank.
The dispute had pushed Carinthia, whose largest city is
Klagenfurt, to the edge of insolvency.
Under the new offer, the repayment rate for senior bond
holders is seen at 90 percent of nominal value -- around 8
percentage points more than the previous offer. Creditors can
pocket the money after 50 days at the earliest.
"As of the end of last week, I can report that the status is
now that 75 percent of creditors for senior bonds agree and 50
percent for junior bonds," Finance Minister Hans Joerg Schelling
said on the sidelines of a cabinet meeting.
Two thirds of creditors, including 25 percent of junior
bondholders, are needed for the offer, expiring on Friday, to be
binding. Creditors had rejected a first proposal as too low in
Junior bondholders will get back up to 45 percent of nominal
Hypo had to be nationalised in 2009 after a Balkan expansion
spree went awry and German regional lender BayernLB,
which in 2007 bought a majority stake, gave up control.
Up until 2014 the failed lender cost Austrian tax payers 5.5
billion euros. Financial regulator FMA took charge last year,
imposing a debt moratorium and seeking a big haircut.
The money for the settlement should be recovered from Heta
asset sales, which include non performing loans, property and
machinery. The country's debt level will not be affected, the
finance ministry said, as appropriate provisions had been made
Carinthia will provide 1.2 billion euros toward the buyback,
helped by a federal loan it has to repay over 30 years.
The province's governor said the news was positive but he
kept up his guard, saying creditors could also withdraw their
approval until the offer expires on Friday.
"We won't count our chickens before they're hatched," said
($1 = 0.8957 euros)
(Reporting by Kirsti Knolle; Editing by Keith Weir)