OREANDA-NEWS. Fitch Ratings has affirmed Heta Asset Resolution AG's EUR1bn government-guaranteed Tier 2 subordinated notes (XS0863484035) issued in 2012 and maturing in 2022 at 'AA+'. Fitch does not rate Heta or any other debt instruments issued by Heta or its predecessor, Hypo Alpe-Adria-Bank International AG (Hypo Alpe).

KEY RATING DRIVERS
The Republic of Austria guarantees the "due and punctual" payment of all obligations payable by Hypo Alpe (and, consequently, Heta as Hypo Alpe's legal successor) under the notes. The notes' rating is aligned with Austria's Long-term Issuer Default Rating (AA+/Stable), based on Fitch's expectation that the Austrian government will continue to honour the unconditional and irrevocable guarantee provided to the noteholders.

The notes are covered by the temporary moratorium on Heta's liabilities enforced on 1 March 2015 by the Austrian Financial Market Authority (FMA) as part of Heta's resolution. However, we understand that the sovereign has ensured full and punctual payment of all amounts that have become due since then. We expect that Austria will continue to make payments on the notes in accordance with their original terms if their principal is written down. Such a write-down could happen if the bail-in tool is applied to the notes in accordance with the Federal Act on the Recovery and Resolution of Banks (Bundesgesetz ueber die Sanierung und Abwicklung von Banken, BaSAG), Austria's version of the EU Bank Recovery and Resolution Directive (BRRD).

In our view, Heta's resolution does not imply a diminished willingness to honour the sovereign's own guarantees. We believe that the government has little incentive not to honour its guarantee as doing so would probably severely and durably damage its own standing in the capital markets.

The sovereign-guaranteed notes are unaffected by the tender offer submitted on 21 January 2016 by the province of Carinthia to Heta's creditors covered by Carinthia's deficiency guarantees. The affirmation also reflects our view that any potential consequences of a rejection of the tender offer by Carinthia-guaranteed creditors will not affect payments due under the sovereign-guaranteed notes.

According to the sovereign guarantee, should the notes - due to regulatory or other developments including statutory loss absorption - bear losses such as a write-down, conversion into equity or any other resolution measure, the sovereign would ensure continued and punctual payment of the originally guaranteed payment amounts.

RATING SENSITIVITIES
The notes' rating is sensitive to changes in Austria's sovereign rating, which would be reflected in a change in the notes' rating. The rating of the notes is also sensitive to timely execution of the payments from the sovereign when the guarantee is triggered. As Fitch expects Austria to honour its guarantee for the notes irrespective of Heta's creditworthiness and in a timely manner, the issuer's risk profile does not represent a rating sensitivity for the notes.