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By Laura Benitez
LONDON, April 5 (IFR) - Volkswagen is capitalising on the insatiable demand for the euro deal that marked its return to the global capital markets last month, and is now tapping investors for sterling debt.
Volkswagen Financial Services is marketing a dual-tranche four and eight-year benchmark bond - a comeback trade for what was one of Europe's most frequent corporate bond issuers until it admitted cheating in US emissions tests in September 2015.
VW was last in the sterling market in April 2015 with a £350m five-year.
"It was a matter of time before they returned to the sterling market and it was important that they did the euro first. But with that out of the way and it going so well, there was nothing to stop them," a lead on the deal said.
Initial price thoughts for the four-year tranche are Gilts plus 135bp, and 155bp for the eight-year.
The 1.750% April 2020 bond is bid at Gilts plus 119bp, from a wide of plus 308bp in September 2015, according to Tradeweb. It was originally sold at plus 70bp.
At the end of last month, the troubled automaker issued its first euro unsecured bond since the cheating scandal, attracting €25bn of demand for the €8bn multi-tranche transaction.
However, unlike that deal, which was issued out of its International Finance subsidiary, today's transaction is being issued out of its Financial Services arm, rated A2/BBB+ by Moody's and S&P.
Consequently, VW Financial Services does not qualify for the Bank of England's Corporate Bond Purchase Scheme, unlike March's euro deal (rated A3/BBB+ negative/negative by Moody's and S&P), which received support from the European Central Bank's Corporate Sector Purchase Programme.
According to a lead, the borrower's sterling funding is typically issued out of its Financial Services arm.
Bookrunners on today's deal are Barclays, Goldman Sachs and HSBC.
Volkswagen also plans to return to the US dollar market this year, and to the hybrid sector in the second half of the year, Joerg Boche, VW's head of treasury, said on an investor call last month. (Reporting By Laura Benitez; Editing by Philip Wright)