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 Europe's biggest carmaker has been effectively shut out of the
unsecured bond market since September, when it admitted to rigging
U.S. diesel emissions tests.
Investors have been put off by uncertainty over the costs of the
scandal, which could run into tens of billions of euros in
regulatory fines, vehicle refit costs and lawsuits. That has left
the German company relying on an expensive 20 billion euro ($23
billion) bridging loan agreed with banks in December.
With the publication of its annual results on April 28, however,
Volkswagen (VW) hopes to provide some clarity on costs.
"Volkswagen has started talking to banks, and a first issuance may
take place right after the publication," one of the sources said,
speaking on condition of anonymity as the matter isn't public.
"The provisions figure (VW's estimated cost of the scandal) will
enable bond investors to do their math," another said.
A VW spokesman said on Monday the company expected to issue debt on
capital markets before the end of June.
Ahead of its results, VW <VOWG_p.DE> and U.S. regulators have been
set an April 21 deadline by a federal judge to agree a fix for the
nearly 600,000 cars affected in the United States.
Such an agreement will be key to VW putting a cost on the scandal.
The company postponed its 2015 results in February, saying it was
not yet in a position to give a precise figure.
"As soon as VW strikes a settlement, it will start a roadshow and we
may see the issuance of an unsecured bond within one or two weeks",
one of the sources said, adding the carmaker might look to raise 3-4
billion euros.
"VW is keen to come to the market ... markets are on fire", another
source said, adding the size of the issuance was unclear and would
likely depend on the terms VW can secure.
Conditions for a return to the bond market appear favorable, as auto
bond spreads have decreased by more than 30 basis points since the
European Central Bank's announcement to expand its asset purchasing
program. Investors expect VW bonds to qualify for this program.
While not at risk running out of funds, as it has used the
securitization market and still has plenty of unused credit lines,
VW is keen to issue unsecured debt before the summer break as
relying on loans is becoming increasingly costly.
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The company has only drawn about 8 billion euros of the 20 billion
euro bridging loan and could continue to rely on the facility, two
of the sources said.
However, the one-year loan is relatively expensive with a coupon of
70-80 basis points over the benchmark Euribor rate, and gets even
more costly over time as the coupon automatically increases by 25
basis points six months after issuance and again after nine months.
By comparison, the coupons for the 1.5 billion euros of five and
two-year bonds its subsidiary Volkswagen Leasing issued in August
2015 stand at 0.75 percent and 27 basis points over the money market
benchmark.
Banks which have committed to the larger of two tranches in the
bridging loan will be rewarded by getting roles in organizing the
return to the debt market, the sources said.
Barclays, BNP Paribas, Societe Generale, Citi, Unicredit, HSBC, Bank
of Tokyo Mitsubishi and Mizuho all offered up to 2.5 billion euros
in the bridging loan. Barclays, BNP and SocGen are seen as having a
good chance of being picked as bookrunners to lead the debt issue,
the sources said.
(Additional reporting by Jan Schwartz; Editing by Maria Sheahan and
Mark Potter)
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