ALLIANZ SE 
The FMA, which is overseeing the wind-down of Heta, on Sunday announced measures including the bail-in, or haircut, of 54 percent, the extension of bonds' maturities to 2023 and the cancellation of coupon payments as of March of last year.
The announcement is the latest chapter in a standoff between the province of Carinthia and Heta's creditors, many of which insist on repayment in full because their bonds were guaranteed by Carinthia, which could push the province into insolvency.
Carinthia guaranteed the bonds of local lender Hypo Alpe Adria before it collapsed and Heta was formed to wind it down. Carinthia says it cannot afford to fully honour the remaining guarantees, which the FMA put at 11.1 billion euros (£9 billion).
Creditors are likely to sue Carinthia to recover the difference between what is paid out to them under Heta's wind-down and their bonds' full face value.
The FMA put that difference at 6.4 billion euros, roughly three times the annual budget of Carinthia, a southern province of about 560,000 people that borders Italy and Slovenia and was long the stronghold of far-right politician Joerg Haider.
The haircut's size is based on the amount the FMA expects will be recovered from the sale of Heta's assets by 2020. It had said the estimate would be conservative to ensure that, if it is wide of the mark, there is extra revenue to be shared out.
Only by the end of 2023 will it be possible to pay out all funds owed, the FMA said, partly in anticipation of many court cases, meaning creditors face a wait of seven years for their repayment of 46 percent of senior bonds' face value.
Carinthia offered to buy back the bonds it guaranteed, with loans from the Austrian government, for 75 percent of senior bonds' face value, plus a last-minute sweetener by the Austrian government that brought the offer to around 82 percent.
Too few creditors accepted the offer when it expired last month, and the question is now whether a compromise can be found or whether the dispute will be settled in court.
"An out-of-court agreement on dissolving Carinthia's guarantees is still the best solution," Austria's Finance Ministry said in a statement. "For that to happen, the creditors must now act and make a concrete proposal."
On Sunday, Germany's insurers said an amicable agreement over debt repayment with Heta was still possible.
"However, it must be clear that any new offer (by the Austrians) must look significantly better," said Klaus Wiener, chief economist of German insurance trade body GDV said.
Germany's insurers remained of the view that full repayment of debt to creditors was needed, he said in a statement.
Austrian newspaper Der Standard reported this weekend that representatives of Carinthia and creditors would meet in London on Tuesday to try to find a solution.
A spokeswoman for an alliance of creditor groups that says it controls Heta bonds with a face value of more than 5 billion euros said it would study the FMA's decision. Carinthia said it would do the same and was prepared for any consequences.
($1 = 0.8773 euros)
(Additional reporting by Kirsti Knolle in Vienna and Jonathan Gould in Frankfurt; Editing by Ros Russell)
By Francois Murphy and Alexandra Schwarz-Goerlich
