UPDATE 2-Austria imposes debt moratorium on Heta "bad bank"

Sun Mar 1, 2015 1:48pm EST
* Austrian watchdog FMA steps in to wind down Heta
* Imposes debt moratorium until end-May 2016
* Step follows capital hole that state won't fill
* Heta still solvent, state debt guarantees still valid (Adds details and background)
- von Michael Shields
VIENNA, March 1 (Reuters) - Austria's Financial Market Authority stepped in on Sunday to wind down "bad bank" Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria.
 
 
 
It was the second big intervention by Austrian authorities, who last year imposed losses on some junior creditors of Hypo despite guarantees from its home province of Carinthia in a controversial move now under court review.
Sunday's step, allowed by new legislation that gives banking supervisors more power, followed an audit of Heta's balance sheet that exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill.
"Given this dramatically changed view of the situation, the finance ministry in accord with the government decided not to provide Heta with any more taxpayer money," the ministry said.
It stressed that Heta was not insolvent and that debt guarantees from Carinthia and the federal government were unaffected by the move. Carinthia backs 10.7 billion euros worth of Heta debt. The federal government backs a 1 billion euro bond issued in 2012 that the ministry said would be honoured in full.
The moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.
Around 9.85 billion euros worth of Hypo/Heta debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.
Another 1.24 billion in Pfandbriefe, or covered bonds, is covered by the moratorium, as are claims from former Hypo owner BayernLB, the German state lender from whom Austria nationalised Hypo in 2009, the FMA said.
For a full list of securities affected see the FMA decree:
The finance ministry noted that creditors could in principle be forced to contribute to the costs of winding down Heta under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.
Taxpayers had already pumped 5.5 billion euros in aid into Hypo, which Austria took over when it hit the wall after a decade of unbridled expansion fuelled by debt guarantees that Carinthia was never placed to honour.
The country's worst postwar financial scandal has swelled state debt and budget deficits, soured ties with BayernLB owner Bavaria, and triggered a parliamentary investigation to find a political scapegoat for the expensive mess.
Ratings agency Standard & Poor's said last week it would watch closely whether state debt guarantees on Hypo debt are upheld should creditors gets bailed in, as some opposition leaders have demanded.
($1 = 0.8933 euros) (Editing by Ralph Boulton)