Austria stands firm after creditors reject offer to buy back bonds

Province of Carinthia faces threat of insolvency over guarantees for Hypo Alpe Adria

Austria’s finance minister said 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 province of Carinthia and creditors who include German-owned groups such as Commerzbank and Pimco.

Carinthia says it cannot afford to honour €10.8 billion in guarantees it made for the debt of local lender Hypo Alpe Adria when far-right politician Jörg Haider was its governor.

Hypo 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.