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(Adds investor and treasurer comments)
By Laura Benitez
LONDON, March 22 (IFR) - Investors will have to weigh up the risks of buying into Volkswagen's unsecured euro bond comeback after the company's head of treasury warned that more "surprises" could emerge from the emissions cheating scandal.
The automaker held an investor call on Wednesday morning and is expected to start marketing a four-tranche trade on Thursday.
It will be the first such issue since the scandal crushed the company's share price and sent its credit spreads rocketing wider in September 2015.
"We are not completely done with the diesel issue. We are still in flux and investors should be prepared for further information to be released in the coming weeks, months," Joerg Boche, VW's head of treasury, said on the call.
Despite the warning, Boche said the firm now had a good basis for its return to the senior unsecured market.
Some potential buyers, however, were less than convinced.
"The presentation slides are the shortest pack I have seen with virtually no mention of the diesel issue," one investor said.
"I thought they would do a bigger roadshow. It was just the treasurer doing the call, but you might have thought that after everything going on the CFO might have made himself available. Guess it's business as usual at VW."
VW had reportedly been struggling to finalise a prospectus given fears over further disclosures, bankers said.
The transaction will be issued using a standalone prospectus, which is expected to be released later today.
"Not all issues are truly dealt with," Boche said.
"There's not an extreme difference between a standalone and MTN prospectus, but the former allows more flexibility and we thought it was more appropriate to go with the standalone documentation right now."
Unlike an MTN programme, which uses standardised terms for all of an issuer's transactions, standalone documentation applies only to a specific trade.
"It seems like this is a standalone deal, not off the MTN, so it sounds like VW is still not in a position to update its docs," the investor said.
Following this morning's call, VW has offered to hold one-on-one discussions with investors throughout Wednesday, ahead of a planned two-year floater, and four, 6.5, and 10-year fixed tranches.
Volkswagen also plans to return to the US dollar market this year, and to the hybrid sector in the second half of the year, Boche said.
The automaker was one of Europe's most frequent corporate bond issuers until it admitted cheating in US emissions tests.
"There will be a lot of pent-up demand. We've been underweight on the name but would definitely be interested in building up a position again," another investor said.
"I would like to think that investors will be offered a premium for playing in the deal but I expect demand to be massive considering it will be around €4bn and so eagerly awaited."
Market participants have speculated that Volkswagen would raise as much as €10bn, but a lead banker said the deal would be in the €4bn-€5bn range.
"They don't have any liquidity issues so the size was never going to be a AB InBev-type of trade. VW are known for doing €750m-€1bn per tranche, but it's still too early to talk about size yet," the lead said.
VW had a €24.5bn net liquidity cushion in 2015 and €27.2bn in 2016.
"They've been using the ABS market and CP so they’ve pulled on other levers and drawn more cash than before," another lead manager said.
"So actually they’re in a pretty good place. They want to come back as 'business as usual' rather than emergency funding."
Finance chief Frank Witter hinted of VW's market return last Tuesday, saying the company was not intending to extend an expensive €20bn bridge loan past June this year.
Volkswagen will be keen to lock in cheaper funding costs.
Its senior spreads blew out by up to 220bp after the scandal broke. But bonds have since bounced back with the help of the ECB, which has been buying paper as part of its Corporate Sector Purchase Programme.
VW's €750m 0.75% August 2020s were bid at swaps plus 37bp on Wednesday, having traded as wide as 259bp after the scandal hit.
The issuer will be Volkswagen International Finance NV, guaranteed by Volkswagen AG and rated A3/BBB+ by Moody's/S&P (both negative outlook). Barclays, BNP Paribas, Citigroup, Mizuho Securities, Societe Generale and UniCredit arranged the investor call. (Reporting by Laura Benitez, editing by Helene Durand and Julian Baker)