"if you're in altitude hold mode, and reduce power so that you'd go below Vy, it automatically reverts to airspeed hold at Vy. Very nice!"
How is it very nice that an AP that was told to maintain a height is now allowing a descent? Just imagine if you were over water and lowered collective to slow down.
You misunderstand. What is meant is, you are in ALT hold on cyclic channel, then reduce collective to that you go below Vy, so it automatically reverts to IAS mode on the cyclic and transfers ALT mode to the collective, pulls in some power thereby stabilising the flight path at the desired altitude at just below Vy (around 60kts), with no loss of height.
Other modern types I am told, would just pitch the nose up, then drop out the ALT mode and allow the heli to descend to the surface at low speed.