FAQs HETA Haircut
The Austrian Financial Market Authority (FMA) as the resolution authority answers questions regarding the resolution of HETA ASSET RESOLUTION AG (“HETA”) in accordance with BaSAG:
The resolution authority used this time to assess the application of the resolution instrument of bail-in and the other necessary accompanying measures (the so-called “framework for resolution”). The aim of the framework for resolution is to create a well-established environment for HETA and its management, in which the management is in a position under close supervision by the FMA to proceed with the resolution process, and to ultimately to carry out the liquidation of the Company.
Why is the resolution authority issuing two administrative decisions (an administrative decision about the challenge procedure (“Vorstellungsbescheid”) and an emergency administrative decision (“Mandatsbescheid”)? (Show content for: Why is the resolution authority issuing two administrative decisions (an administrative decision about the challenge procedure (“Vorstellungsbescheid”) and an emergency administrative decision (“Mandatsbescheid”)?)
The emergency administrative decision of 10.04.2016 determines the additional measures to be taken pursuant to BaSAG, namely bail-in, the cancellation of interest from 01.03.2015 and the harmonisation of the maturity date of all eligible liabilities to 31.12.2023. The aim is to ensure that the ongoing smooth resolution of HETA.
The resolution authority thereby makes a significant contribution to ensuring that it is primarily the creditors who are affected, and that it is therefore not necessary for the government, and therefore the taxpayer, to intervene.
Since they are expert prognoses, and are therefore estimated values on the basis of certain assumptions, it is not possible to deduce the ratio directly from the published annual financial statements of HETA. The resolution authority and the external valuers are required to proceed in a sufficiently cautious way in accordance with the law, so that where at all possible a single haircut will suffice.
The resolution authority and an independent valuer have retroactively checked the valuation principles used in the annual financial statement for 2014 and have ensured that there is a sound basis for wind-down planning and the legally prescribed valuation. The legal grounds for the application of the bail-in instrument also ultimately exist. With an adequate information basis having been created to allow the resolution process to be continued, the emergency administrative decision was therefore issued on 10.04.2016 in the interested of procedural efficiency.
The administrative decision in relation to the challenge procedure replaces the emergency administrative decision of 01.03.2015 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 01.03.2015.
The quota of the write-down agreed upon is based on a cautious and conservative estimation of the settlement proceeds of HETA to be expected in the future. The creditors will in any case participate in the financial success, and if necessary as a result of an upward revaluation or a further write-down of eligible liabilities by means of an emergency administrative decision.
There will be a distribution of losses in accordance with the legally prescribed loss absorption cascade. In a first step the Tier 1 capital (shareholders) was written down to zero. In light of the fact that HETA’s losses have however emerged to be significantly higher than its Tier 1 capital, all other capital instruments and all of HETA’s subordinated eligible liabilities have been written down (given a haircut) to zero. The losses over and above this amount, which could not be assigned to these classes, were distributed on a pro rata basis among the creditors of other eligible liabilities. The quota of the write-down of 46.02% is the result of dividing the net proceeds of settlement by the other eligible liabilities.
There are also liabilities that are not allowed to be the subject of a bail-in pursuant to BaSAG. Pursuant to Article 86 para. 2 BaSAG these include liabilities towards commercial or trade creditors, employees, secured liabilities and liabilities arising from trustee relationships.
These secured liabilities are ones that have been secured against HETA’s assets. This include, for example, covered bonds issued by HETA, which have been secured by the corresponding tangible assets of HETA, such as HETA’s real estate but not, however, by third party collateral. The default guarantee of the Province of Carinthia does not constitute such a collateral as defined under BaSAG.
The liabilities, which cannot be considered as subject of a haircut pursuant to BaSAG, will be contractually satisfied at the point of their contractual maturity.
The interest accrued (and not paid) as of 28.02.2015 are added to the nominal value and are subject to the haircut. The interest from 01.03.2015 of EUR 2,706 is reduced to zero and are not to be paid by HETA. The amount payable of EUR 4,663 which is the result of multiplying the quota of the write-down with the absolute amount of the eligible liability, is paid out to the creditor by means of any voluntary interim distributions and/or a final distribution prior to the liquidation of HETA.
Whether a liability is deemed to be eligible or not, is based on the legal categorisation in BaSAG. It is not possible to deduce the total of all eligible liabilities and the quota of the write-down from the publicly available balance data for HETA. Creditors of eligible liabilities can find this information in the valuation report.
It is 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.
In order to take due consideration of the past experiences and the legal provisions for an expedient wind-down, the resolution authority has set a target of completing the liquidation of HETA by the end of 2023.
The current resolution plan for HETA generally prescribes wind-down being completed by 2020. From the current perspective, it is necessary to assume for reasons of caution that HETA’s lines of refinancing to other companies within the former group will only be recovered after this date. Organisational measures relating to closure and the ongoing judicial proceedings may not have been concluded by 2020. The harmonisation of the maturity dates results, together with the 100% cancellation of interest from 01.03.2015, from the principle of equal treatment of creditors.
The principle aim of this second emergency administrative decision is in any case to place HETA in a position to be able to carry out the resolution process from now on without further recourse to an emergency administrative decision while also maintaining the objectives of BaSAG. The resolution itself will occur under the consequent ongoing supervision of the resolution authority. In the event that it should emerge over the course of time that additional supporting measures are required to enforce the law, then such measures will be deployed at the appropriate time.
How can the resolution authority ensure that the previous owners do not gain any economic advantage from the resolution process, and that the owners are unable to exercise any further influence? (Show content for: How can the resolution authority ensure that the previous owners do not gain any economic advantage from the resolution process, and that the owners are unable to exercise any further influence?)
The resolution authority will also continue to monitor how HETA conducts its business once the haircut has taken place in accordance with company law. This is the mildest means to guarantee the achievement of the resolution objectives. There is currently no reason to assume that the achieving of this objective is being endangered. However, in the event that circumstances require, the resolution authority could instruct the conducting of certain individual business transactions or their omission by means of an administrative decision or – as a last resort – even take over control.
In the event that creditors use means of execution, this could constitute a breach of BaSAG principles regarding the protection of all creditors. This could lead to the resolution process being cancelled and a insolvency petition being submitted to the resolution authority.