* Senior bondholders offered 75 pct of original value
* Junior bondholders offered 30 pct
* Can invest proceeds into zero coupon bond, promissory
* Holders have until Oct. 7 to respond
(Adds detail, background, FMS)
By Kirsti Knolle
VIENNA, Sept 6 Bondholders of the "bad bank" for
collapsed Austrian bank Hypo Alpe Adria were offered a
discounted buyback on Tuesday that could bankrupt the province
of Carinthia if rejected.
The offer to buy back around 11 billion euros ($12.3
billion) in bonds of Hypo wind-down vehicle Heta at a
discount follows new EU rules that require creditors, not
taxpayers alone, fund bank rescues.
"We are confident that the offer will be positively received
and that Carinthia will be released forever from a dangerous
threat," said Gaby Schaunig, the province's finance secretary.
The Austrian government and province agreed an improved
offer with bondholders including Commerzbank and Dexia
Kommunalbank in May after creditors rejected a first
proposal in March.
Deutsche Bank, which holds junior bonds with a
nominal value of 200 million euros, had complained about the
difference in treatment of creditors in the first offer.
Under the revised offer, Carinthia, helped by loans from the
federal government, is offering senior creditors 75 percent of
the original face value and junior creditors 30 percent.
With a population of 560,000 and an annual budget of just
over 2 billion euros, Carinthia faces bankruptcy if no agreement
with creditors is reached.
Senior bondholders can reinvest the payout in a long-term
zero coupon bond guaranteed by the federal government.
Junior bondholders are being offered long-term promissory
notes for reinvestment.
Creditors can sell the new notes after 60 days with the
overall repayment rate for senior bondholders seen at about 90
percent and at about 45 percent for junior bondholders.
Creditors have until Oct. 7 to respond. The members of the
three largest creditor groups have already said they will
support the offer.
A two-thirds majority is needed to accept the offer,
including at least 25 percent of senior bondholders and 25
percent of junior bondholders.
Austria's finance minister hopes the long-running dispute
will be resolved this year. However, he could not rule out the
possibility that some creditors may reject the offer and sue.
Eight years after the collapse of Lehman Brothers, dealing
with failing lenders remains difficult in the European Union.
Rescues in Portugal, Greece and Italy triggered protests over
unequal creditor treatment and led to new EU rules.
Austria's financial watchdog took control of Heta last year
in the first application of those new rules. It cut Heta's
senior liabilities by 54 percent and extended the maturities of
all eligible debt while freezing repayments.
In June a legal challenge for full repayment of Heta bonds
brought by FMS, a German equivalent of Heta, was referred to the
European Court of Justice.
A ruling in favour of FMS's demand for the repayment of
bonds worth 200 million euros plus interest could prompt further
claims from German creditors and trigger Heta's insolvency.
FMS was not available for immediate comment on Tuesday.
($1 = 0.8964 euros)
(Editing by Michael Shields and Jason Neely)