Volkswagen Offering Euro Bonds as Corporate Credit Risk DeclinesAbigail Moses
Volkswagen AG is marketing 2 billion euros ($2.6 billion) of bonds as corporate credit risk fell for the first time in five days.
Europe’s biggest carmaker is selling 1.25 billion euros of three-year notes that will be priced to yield 37 basis points more than the mid-swaps rate, and 750 million of eight-year securities with a spread of 67 basis points, according to people familiar with the transaction. The Markit iTraxx Europe Index of credit-default swaps linked to 125 investment grade companies fell 1.5 basis points to 117.5.
Corporate credit risk jumped this week amid concern the prospect of financial collapse in Cyprus will reignite the region’s debt crisis. European car sales contracted 10 percent in February as a steepening decline in Germany, the region’s biggest market, hurt previously resilient Volkswagen, Bayerische Motoren Werke AG and Daimler AG.
“Volkswagen is a routine issuer,” said Brian Studioso, an analyst at CreditSights Inc. in London. “It issues often, has a huge financial services business and the credit strength to almost issue if and when it chooses.”
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.