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 Europe's largest automaker is under pressure to strengthen its
finances, with analysts expecting it will have to pay out tens of
billions of euros to cover fines, lawsuits and vehicle refits after
it admitted to cheating U.S. diesel emissions tests and to
falsifying carbon dioxide emissions.
The biggest corporate scandal in the German company's 78 year
history has forced out its long-time CEO, wiped billions of euros
off its stock market value and hammered its bonds - making it much
more expensive for the company to borrow money through its
traditionally preferred route of the debt market.
The sources said Volkswagen (VW) hoped its bonds would have returned
to more normal levels by next spring, allowing it to issue debt and
repay the bridging loan.
The loan and subsequent bond placements will likely cost VW about
150 million euros in coupon payments and fees, one of the sources
said, adding to the company's financial burden as a result of the
scandal.
More than two months after VW's cheating became public, the company
is still trying to identify those responsible and organize refits
for around 11 million vehicles worldwide.
Regulators and prosecutors around the world are also still
conducting investigations, with the company's Porsche brand
confirming on Wednesday that its Italian offices had been searched
by prosecutors as part of their inquiry into VW.
VW's new CEO has said the firm will need to make massive cost cuts,
but the company's majority shareholder spoke out on Wednesday in
favor of protecting jobs.
"Jobs are a very valuable asset," Wolfgang Porsche, chairman of
family-owned Porsche Automobil Holding SE, told a gathering of
20,000 workers at VW's main plant in Wolfsburg.
"This asset mustn't be squandered," said Porsche, a member of the VW
supervisory board's influential steering committee.
VW workers are facing growing uncertainty, with sales of its
namesake brand in the United States plunging by a quarter in
November and orders slowing in Europe.
Production staff at the VW brand are facing extended 3-week shutdown
periods over Christmas at German plants. However, labor boss Bernd
Osterloh said on Wednesday even temporary jobs at the company's
Wolfsburg plant, where VW last year built 836,000 cars, would be
safe in the first quarter of 2016.
In an interview with Stern magazine published on Wednesday, VW CEO
Matthias Mueller said management board members had agreed to an
unspecified cut in pay, acceding to calls from labor representatives
for them to share in the belt tightening.
LOAN TERMS
Thirteen banks have each offered to lend VW either 1.5 billion euros
or 2.5 billion euros, or a total of 29 billion euros, two of the
sources told Reuters, declining to be named because the matter is
confidential.
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One said VW would decide how to allocate the 20 billion euros it
wants to borrow on Friday. Another person said that would happen in
the coming days, without being more specific.
VW declined to comment.
Analysts have said securing funding would help signal to investors
that VW remains a trusted borrower. Standard & Poor's on Tuesday
downgraded VW's credit rating to 'BBB+' from 'A-', following similar
moves by peers Fitch and Moody's.
The bridging loan carries a coupon of 80 basis points over benchmark
rates for those banks offering to lend 2.5 billion euros and 70
basis points for those offering 1.5 billion euros, the sources said.
As an incentive for fast repayment, the coupon will rise by 25 basis
points after six months and again after nine months, they added. For
each notch that ratings agencies downgrade VW, the firm has agreed
to pay an additional 10 basis points, while the minimum rating
accepted by the banks is 'BBB', they said.
VW has said it plans to issue 12 billion euros in bonds when its
conditions for issuing debt improve.
One banker said it wanted the spread on its bonds over the benchmark
to narrow to around 100 basis points before it issues debt. VW's
1.25-billion-euro, 3.25 percent bond due January 2019, which traded
at 40 basis points over the benchmark before the scandal, is
currently trading at around 138 basis points.
The banks taking part in the bridging loan will organize the bond
placements, for which they will be able to charge fees of 20-25
basis points, one of the sources said.
($1 = 0.9423 euros)
(Additional reporting by Robert Smith; Editing by Maria Sheahan and
Mark Potter)
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