The first bail-in under new European rules has taken place. A little more than a week ago Heta Asset Resolution’s bondholders had no choice but to take their losses, as the Austrian regulator ordered for 54% of its debts – 100% in the case of junior (subordinated) bonds - to be written off. Bondholders will also no longer receive interests from the bank.
The ‘bad’ bank was formed following the nationalisation of Hypo Alpe-Adria-Bank International and given its status because the bank’s portfolio was chiefly made up of risky loans from Eastern European countries. Bondholders who lent money to the bank knew that it was a risky bet.
Because of an increasing number of defaults on these loans Heta Asset Resolution no longer held sufficient collateral and when a gap of € 8.5 billion was uncovered, the regulator decided to apply the new European bail-in rules, leaving it up to the creditors to pay for the restructuring of the bank. Most of the affected creditors, such as a few German banks, insurers, hedge funds and mutual funds, were prepared for the bail-in and had already taken their loss.
Read the full press release here.