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.
The step, allowed by new legislation that gives banking supervisors more power to intervene, followed an outside 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, the FMA said.
The finance ministry confirmed this in a statement, adding Heta was not insolvent and that debt guarantees by Hypo's home province of Carinthia and the federal government were unaffected by the move.
Carinthia guarantees back 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.
More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.
The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.