VW Says Bonds Meet ECB Purchase Criteria Ahead of Market Returnby and
Potential for ECB acquisitions ‘can only be good’ for carmaker
Company shut out of debt market following emissions scandal
Volkswagen AG expects its notes will be eligible for the European Central Bank’s bond-buying program, potentially easing a return to the region’s debt market after an emissions scandal.
The possibility of ECB purchases “can only be good” for Volkswagen, Frank Fiedler, the chief financial officer of its financing unit, said this week at a briefing in Hanover, Germany. The company is awaiting the release of the final details of the ECB program, he said.
VW, traditionally the biggest corporate issuer of euro notes, has been shut out of the market since last year because it rigged exhaust systems on 11 million diesel-powered vehicles to pass pollution tests. The ECB plans to start buying investment-grade corporate debt in euros next month as it steps up efforts to revive inflation and investment.
“In Volkswagen’s case, the ECB support is coming at the right time,” said Andriy Boychuk, co-head of credit research for emerging markets, high-yield and Europe at Pioneer Investments, which oversees about 219 billion euros ($244 billion). Without the bond-buying program, a loan the carmaker raised last year would be “expensive” to refinance, he said.
Volkswagen signed a 20 billion-euro bridge loan with 13 banks in December, creating a financial cushion as it dealt with the fallout from the emissions-cheating scandal. The Wolfsburg, Germany-based automaker was downgraded twice last year by S&P Global Ratings to BBB+, the third-lowest investment grade. It was cut to A3, the fourth-lowest investment grade at Moody’s Investor Services.
An official at the ECB declined to comment on whether Volkswagen bonds will be eligible for the purchase program.
The automaker said last month that “the window should be open” for bond sales after it reports first-quarter earnings on May 31. A Chinese arm sold notes in yuan about two weeks ago.
Volkswagen issued 8.9 billion euros of debt in 2015 before the emissions scandal broke, enough for it to top the annual ranking of corporate sales in the single currency for a fifth year, according to data compiled by Bloomberg.
Euro-area national central banks will buy corporate debt on behalf of the ECB in primary and secondary markets, and as much as 70 percent of each bond.