Volkswagen Pauses Bond Issuance Amid Emissions Cheating Scandal

  • VW has equivalent of $32.7 billion in debt maturing by 2017
  • Carmaker says it needs time to update financing documentation

Volkswagen AG has put bond financing on hold as it grapples with uncertainty over the ultimate cost of the emissions cheating scandal.

The company needs time to update the documentation required to sell bonds and other financing instruments to reflect potential fines and penalties, it said in an e-mailed statement. Volkswagen, in the top five of global corporate issuers since 2011, last sold senior unsecured bonds on Sept. 10, eight days before its emissions cheat became public, according to data compiled by Bloomberg.

“We are currently working on this with high priority, but a pause in issuance is to be expected,” the Wolfsburg, Germany-based carmaker said in an e-mailed response to questions submitted by Bloomberg. “We typically pre-fund our annual financing needs. This means that in times of uncertainty we can wait until the dust settles before returning to the markets.”

Volkswagen has the equivalent of 2.57 billion euros ($2.76 billion) in bonds maturing this year, 14.3 billion euros next year and 13.5 billion euros in 2017. Its automotive division had 27.8 billion euros in net liquidity at the end of the third quarter, and the carmaker categorized about 10 billion euros of that as a buffer to support credit ratings. Fitch Ratings downgraded the company’s debt by two levels on Nov. 9, joining Standard & Poor’s and Moody’s Investors Service. 

A Volkswagen spokesman declined to comment on when the company will return to the bond markets. 

The carmaker has issued more than 1.5 billion euros of asset-backed securities since Sept. 22 via two offerings, one backed by Spanish auto loans and the other secured by German leases, according to data compiled by Bloomberg.

Scandal Cost

The direct cash cost of the cheating scandal will probably be about 25 billion euros through 2017, Kristina Church, a London-based analyst for Barclays Plc, estimated in a note to investors on Friday. The figure includes 10 billion euros in recall costs, 12 billion euros for fines, 2 billion euros linked to carbon dioxide mislabeling and 1 billion euros in costs for U.S. lawsuits. 

“There remains little clarity” on the total cost and how the scandal will affect consumer buying decisions, Church wrote.

The carmaker set aside 6.7 billion euros in the third quarter to recall about 11 million diesel cars with rigged engines but has already acknowledged this won’t be enough. Separately, it identified 800,000 cars with incorrect CO2 labels, a potentially even more expensive issue to fix because CO2 is the basis for taxation and emissions regulation in Europe. Volkswagen estimated the economic risk of the CO2 irregularities at 2 billion euros. Lenders haven’t complained about information disclosure related to the scandal, the carmaker said.

Chief Executive Officer Matthias Mueller has promised to pare back spending and review the product lineup of more than 300 vehicles across a dozen brands to lower complexity and help maintain financial flexibility.

Fitch downgraded Volkswagen’s credit rating to BBB+ from A, saying the cut reflects “corporate governance, management and internal control issues.” The new rating puts the carmaker at the third-lowest investment-grade scale. Standard & Poor’s and Moody’s both rate the carmaker the equivalent of one level higher.

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