Weekend Economists Down Under May 23-26, 2014

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39. Austria pushes Hypo debt bail-in despite Moody's warning

http://uk.reuters.com/article/2014/05/24/uk-austria-hypo-idUKKBN0E40AH20140524

(Reuters) - Austria will propose within weeks draft legislation to make Hypo Alpe Adria's subordinated creditors help pay for winding down the nationalised bank despite ratings agency Moody's warning about the impact of imposing haircuts on bondholders.

The legislation will focus on "bailing in" holders of nearly 900 million euros (728.8 million pounds) of debt guaranteed by Hypo's home province of Carinthia, not the 1 billion euros of debt with federal guarantees, a finance ministry spokesman said on Saturday.

Late on Friday Moody's cut to junk status its ratings for Hypo's guaranteed subordinated debt, citing the government's plan to hit up holders of subordinated debt backed by Carinthia.

Moody's also downgraded its guaranteed senior unsecured ratings to non-investment grade "to reflect the heightened risk to all bondholders arising from the government's apparent willingness to impose losses on creditors notwithstanding the existence of a statutory guarantee".