Fitch Rates KAF Kaerntner Ausgleichzahlungs-Fonds' Proposed Bond 'AA+(EXP)'
KEY RATING DRIVERS
The expected rating of the proposed bond issue has been equalised with the rating of Austria as the obligations under the guarantee will constitute direct, unsecured, unconditional, irrevocable and unsubordinated debt of Austria, and they will rank pari passu with all other unsecured and unsubordinated loan or bond indebtedness of Austria resulting from financial debts outstanding from time to time, except for obligations ranking in priority pursuant to mandatory provisions of law.
KAF was established by the KAF Law in November 2015. It is a special purpose vehicle created by the Province of Carinthia (Carinthia) to acquire HETA Asset Resolution AG's (HETA) bonds with a guarantee from Carinthia (Landeshaftung) and the Holding Company of Carinthia (Kaerntner Landesholding). The creation of KAF aims to avert threats and risks stemming from liabilities assumed by Carinthia and the Holding Company of Carinthia following the bond acquisition. The SPV will also secure and ensure Carinthia's and its outsourced legal entities' legal capacity to act, and prevent serious damage to the national economy.
KAF plans to submit a tender offer to all HETA creditors in autumn 2016 to acquire certain debt instruments of HETA. The acquisition will be settled either by cash or exchange for the proposed zero-coupon bond to be issued by KAF.
The tender offer is subject to certain conditions. A minimum of 25% of senior creditors and 25% of junior creditors, and two-thirds of all classes need to accept the offer. Should this quota be achieved, the proposed zero-coupon bond issue, for which the expected rating has been assigned, will take place, if HETA creditors opt for the exchange offer.
An upgrade of the ratings on Austria could result in an upgrade of the expected rating of the proposed bond issue provided the guarantee remains unchanged.
Any negative rating action on Austria will be reflected in the expected rating of the proposed bond issue. Any dilution of support of the guarantor as well as any change in or termination of the guarantee will result in a review of the expected rating of the proposed bond issue.