FAQs – 2nd HETA Administrative Decision

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This page contains frequently asked questions relating to the second administrative decision in relation to the challenge procedure in relation to HETA (HETA-Vorstellungsbescheid II) as well as the administrative decision in downloadable form.

 

Why is the FMA publishing a new administrative decision?

Following the emergency administrative decision of 10.04.2016 the resolution authority initiated on its own initiative the investigation procedure, which has now been concluded with the issuing of the administrative decision in relation to the challenge procedure being issued by means of an edict (challenge edict).

The administrative decision in relation to the challenge procedure replaces the emergency administrative decision of 10.04.2016 for those creditors who challenged this emergency administrative decision. This notwithstanding, the legal effects of the administrative decision in relation to the challenge procedure are also extended to those affected parties that did not challenge the emergency administrative decision of 10.04.2016.

No, the administrative decision in relation to the challenge procedure replaces the emergency administrative decision of 10.04.2016. The FMA is legally obliged, upon expiry of the three month period for challenging the emergency administrative decision to initiate the investigation procedure of its own accord. The challenges are addressed in the administrative decision in relation to the challenge procedure, which in turn is published on the FMA’s website by means of an edict.

Findings arising from circumstances that were identified during the investigation procedure, have now been taken into consideration in the administrative decision in relation to the challenge procedure. These findings have led to several substantive amendments compared to the emergency administrative decision of 10.04.2016, such as e.g. the repayment level following the bail-in.

Only the administrative decision in relation to the challenge procedure is now valid. The administrative decision in relation to the challenge procedure replaces the emergency administrative decision of 10.04.2016 for those creditors who challenged this emergency administrative decision. This notwithstanding, the legal effects of the administrative decision in relation to the challenge procedure are also extended to those affected parties that did not challenge the emergency administrative decision of 10.04.2016.

The most significant measures are:

• a 100% bail-in for all subordinated liabilities,

• a bail-in of 35.60% to 64.40% for all eligible preferential liabilities,

• the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,

• a standardisation of the maturity date of all eligible liabilities to 31.12.2023, as well as

• the cancellation of all rights and obligations associated with the existing units and instruments of ownership.

The most substantial amendment contained in the administrative decision in relation to the challenge procedure from the emergency administrative decision of 10.04.2016 is the changing of the amount of the repayment level after the haircut was imposed, from 46.02% originally to 64.40%.

The findings of the valuation that now exist also reflect the progress achieved to date from the disposal by sale of asset items. The results to date of the wind-down have shown that higher returns have been generated from the realisation of assets than were able to be expected at the time of the expert opinion being drawn up on 23.03.2016 and the publication of the emergency administrative decision on 10.04.2016. On the basis of the results achieved from the disposal of assets to date, taking account of fair, prudent and realistic assumed valuations for the future disposal of assets, a higher than initially expected amount of cash will be available at the end of the resolution period for satisfying claims arising from the eligible liabilities. It was therefore possible to compensate for some known and unknown liabilities arising from the wind-down, or to make necessary adjustments to valuations for risks existing as at 01.03.2015. Furthermore, further sources of uncertainty with regard to the estimation of future cash flows have also been reduced as a result of the resolution progressing ahead of schedule.

In order to retain the resolution principles and to ensure an orderly procedure for the distribution of HETA’s assets, the maturity of all eligible liabilities pursuant to Article 86 para. 2 BaSAG were standardised. Depending on the contractual period in question, this means that the maturity has either been extended or shortened.

The complexity of the procedure, in particular due to the complexity of the run-off portfolio and an extensive corporate structure, which necessitates the legal liquidation of several companies, means that in order to achieve the best possible results from the disposal of assets, that the full resolution of HETA may only be expected by the end of 2023. Since it may only be realistic to expect the complete disposal of all assets including the satisfying of remaining liabilities and the distribution of the proceeds from disposal by this point in time, the maturity of the eligible liabilities was amended and standardised in the emergency administrative decision of 10.04.2016 to the point of the decision by resolution to dissolve HETA in accordance with Article 84 para. 9 BaSAG, however at latest by 31.12.2023, and was left unchanged in the administrative decision in relation to the challenge procedure.

The administrative decision in relation to the challenge procedure mentions the possibility for the prior satisfying of the claims of creditors by means of a partial distribution of the proceeds from disposal by sale prior to 31.12.2023. A precondition for an interim distribution is that this approach is in accordance with HETA’s liquidity planning, and that adequate liquidity will still be maintained for HETA’s business operations. Furthermore, in such a case, the future risks that continue to exist emanating from wind-down process must continue to be taken into consideration.

BaSAG does not explicitly mention the ordering of an interim distribution by the FMA in the list of resolution actions. Even if an order by means of an administrative decision were in principle to be considered as being legally permissible, such a step is nevertheless unlikely.

Alternatively, an interim distribution may also be conducted by HETA under private law. Should HETA decide to make use of this possibility, its decision to do so requires the FMA’s consent.

Yes, the repayment levels set out in the administrative decision in relation to the challenge procedure apply for all creditors. The administrative decision in relation to the challenge procedure replaces the emergency administrative decision of 10.04.2016. Its legal effects are also extended to those parties whose rights were affected by that did not challenge the emergency administrative decision of 10.04.2016. This means that the repayment level of 64.40% applied for all creditors of eligible liabilities pursuant to Article 86 BaSAG.

The repayment level now determined by means of the administrative decision in relation to the challenge procedure is based on the findings of the investigation procedure in connection with the issuing of the emergency administrative decision on 10.04.2016, in particular arising from the valuation report.

BaSAG does not contain a provision for the modification of the repayment level on multiple occasions. Where, however, modifications have been undertaken to a resolution tool, then an up-to-date valuation report is required. Based on the current planning status, the next valuation report is scheduled to occur at the end of the resolution of HETA. Consequently, the basis for modifying the repayment level may apply in either the form of a further write-up or write-down.

If there are surplus assets at the end of the period for the disposal of HETA’s assets, than are required to satisfy the claims of the creditors in accordance with the repayment level stated in the administrative decision in relation to the challenge procedure and liquidation under company law of HETA, then these residual assets will be distributed to the creditors. The additional satisfying of claims shall be conducted in the form of a write-up applied in reverse order to the write-down of liabilities as a result of the haircut. This means that the repayment level shall firstly be improved for the holders of eligible liabilities. Only in the event that this group of creditors’ claims are satisfied in full, which is unlikely according to the forecast contained in the expert opinion, would there also be any distribution made to subordinated creditors. The previous owners will not under any circumstance receive the proceeds from disposal by sale.

It is still not possible to completely rule out the prospect of HETA insolvency.

In the case that during the subsequent resolution process the principal of equal treatment of creditors or the principle of No Creditor Worse Off in comparison with insolvency proceedings are breached, then the resolution authority shall have to decide, whether insolvency proceedings should be initiated against HETA. The resolution authority is however in principle committed to continuing the resolution process, since this is according to the valuation report, with a substantial probability, considerably more advantageous than a bankruptcy for the creditors.

During the investigation procedure, estimations were also made regarding the treatment of creditors, as would have been expected in the event of bankruptcy proceedings. The settlement in the event of insolvency returned a potential repayment level under insolvency of 41.66 % compared to 64.40 % under application of a bail-in.

This also demonstrates that the development of the repayment level under the insolvency regime and under the resolution regime do not run parallel to one another. The ratio of the increase of the repayment level of an insolvency against the repayment level under resolution proceedings stands at around one-third; while the repayment level in applying the bail-in has increased from 46.02 % to 64.40 %, the potential repayment level under insolvency has only increased to 41.66 % from its original level of 34.83 %. This circumstance can be explained that in the case of a resolution, it is possible to realise and dispose of assets by means of sale at better values than liquidation values. The implementation of the ADRIA sale purchase and transfer agreement should be taken as an example, under which the repayment of the refinancing line was only made possible during resolution proceedings.

There are currently no preliminary ruling procedures pending at the ECJ. The application for a ruling by the ECJ on the issues of the application of European law have been retracted as a result of the underlying court proceedings having been ended by being dropped or being declared dormant, with the ECJ having expunged the case from its register.

This notwithstanding, there are currently a number of cases still pending in Austrian courts of laws, as well as more frequently in foreign courts of law. However, it is not possible to exclude that issues arising from one of these procedures might again be passed on to the ECJ for preliminary ruling.

Further information:

2nd administrative decision in relation to the challenge procedure in relation to HETA (HETA-Vorstellungsbescheid II)