* Comeback deal for automaker signals turnaround in fortunes
* Investors welcome Volkswagen back with huge demand
By Robert Hogg and Laura Benitez
LONDON, March 24 (IFR) - Volkswagen left nothing to chance for its first euro unsecured bond since the emissions cheating scandal, with the issuer printing a blockbuster trade that silenced any concern around its access to the capital markets.
Attractive pricing eased the comeback trail, as order books fattened out to almost €24bn. The demand gave Volkswagen the comfort to print a €8bn trade, the biggest corporate bond of 2017 and double the €4bn-plus benchmark it initially announced.
The stakes were high for the four tranche issue, a market reopening trade for the German automaker which had effectively been locked out of the senior unsecured market since the emissions scandal broke in September 2015.
The automaker was one of Europe's most frequent corporate bond issuers until it admitted it had cheated in US diesel emissions tests, sending its share price crashing and its credit spreads wider.
"It gives a sign that people are ready to invest in the name despite all the headlines, which is a good signal for the company and ensures that it can come to the market again," said Christian Hantel, senior portfolio manager at Vontobel Asset Management.
Hefty interest came despite indications in an investor call that the emissions debacle is set to rumble on.
"We are not completely done with the diesel issue," said Joerg Boche, VW's head of treasury.
"We are still in flux and investors should be prepared for further information to be released in the coming weeks, months."
The automaker went out with a four-tranche deal, each for a minimum €1bn size, all offering a new issue premium of around 25bp-30bp at the start.
"The outcome was outstanding," said a banker away. "The can of worms has opened - they'll soon be back as the biggest European issuer in the capital markets."
Leads then tightened pricing by 15bp across the four tranches.
"They left some basis points on the table, and it was a good opportunity to get into VW via the primary," said Hantel. "That makes it a bit more cost efficient due to saving on the bid/offer spread, and it still makes sense even after some tightening in the pricing."
The overall size did not reach the giddy heights predicted by some market participants, but went beyond the €4bn-€5bn range touted by one lead.
"They have additional sources of liquidity aside from capital markets, through ABS and CP," said a lead.
"They've been pleased and impressed with how resilient those other funding options have been."
Volkswagen raised €2.5bn through a two-year FRN as money market funds poured in. The note, which priced at 100.101, attracted €5.7bn of interest.
"Clearly you see some desperation from the investor side," said the banker away. "It had everything they need. Two years is the average for money market funds, and above par it is still offering something you can't get in the secondary in terms of pricing and size."
The March 2019 note came at 30bp over three month Euribor. The other three tranches - all fixed-rate - were a €1.5bn March 2021 that priced at 45bp over mid-swaps, a €1.5bn October 2023 at plus 80bp, and a €2.5bn March 2027 at plus 115bp.
The 10-year attracted the most orders, drawing €8.4bn in interest, as accounts took advantage of the higher yield.
"We're at a juncture where rates are stable, but at a heightened level where insurers are comfortable to add risk," the lead said. "There's a bid for that longer part of the curve."
And it was not just corporate bond investors getting more comfortable with Volkswagen risk, as the company priced its first above par auto ABS trade - Driver France Three - on the same day as the €8bn deal.
Whereas a slew of carmakers sold euro securitisations at effectively negative yields last year, Volkswagen had not previously attempted to push pricing into this new frontier, given ABS investors' memories of the sell-off around the emissions scandal.
The results means Volkswagen has finally locked in cheaper funding costs, following the fallout from the scandal during which its senior spreads blew out by up to 220bp.
A subsequent bounce back has been aided by 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 38bp on Thursday, having traded as wide as 259bp after the scandal hit.
The successful comeback clears the path for Volkswagen to explore further funding options. Boche indicated on the investor call that Volkswagen could return to both the US dollar bond market and European hybrid bond market in the second half of the year.
Barclays, BNP Paribas, Citigroup, Mizuho, Societe Generale and UniCredit were joint bookrunners.
The expected issue ratings are A3 from Moody's and BBB+ from S&P (both with negative outlooks). (Reporting by Robert Hogg and Laura Benitez, editing by Helene Durand and Sudip Roy)