UPDATE 1 - Slovenia's 'bad bank' issues 127 mln euro govt-backed bond

DUTB said in a statement it issued the bond to pay for the non-performing assets acquired from the undercapitalized Banka Celje as part of measures to strengthen the troubled lender.

The bond's fixed interest rate is set at 1.375% per year.

DUTB signed with Banka Celje on Thursday a contract that provides for the recapitalization of the lender, the transfer of exposures to the 'bad bank' and the provision of state guarantees with regard to obligations undertaken by DUTB. The total gross value of all assets included in the transfer was 411.4 million euro.

Last week, the Slovenian government - which in late 2013 had to step in and recapitalize the country's three biggest banks in a bid to avert an international bailout - said it had approved raising Banka Celje's capital by 95 million euro in cash and another 95 million euro in government bonds after the lender failed to find a private investor and fulfil the Slovenian central bank's capital requirements.

The government bailout of Banka Celje was cleared earlier this week by the European Commission which said the restructuring plan for the lender - which would see it merge with nationalized Abanka Vipa - was in line with EU state aid rules.

DUTB was set up in March 2013 as a government-owned company with the task of facilitating the restructuring of banks with systemic importance that were facing severe solvency and liquidity problems.

($=0.8149 euro)