Austria has recently enacted legislation to bail in holders of Hypo Group Alpe Adria's subordinated debt, despite the State of Carinthia's grandfathered guarantee of this debt. In our view, the new law indicates reduced predictability of extraordinary government support for systemically important banks, and for banks' hybrid capital instruments and grandfathered debt, than we previously envisaged. However, we still consider Oberoesterreichische Landesbank AG (HYPO OÖ) a government-related entity with a high likelihood of extraordinary government support. Moreover, HYPO OÖ's stand-alone credit profile has improved. We are raising our long-term rating on HYPO OÖ to 'A+' from 'A', affirming the 'A-1' short term rating, lowering the ratings on the bank's guaranteed grandfathered debt, and removing all the ratings from CreditWatch negative.
