LONDON, June 7 (IFR) - VW may not be out completely out of
the woods following its emissions cheating scandal but investors
jumped at the opportunity to buy its latest hybrid bond on
The German carmaker has drawn over €11bn of combined orders
for a dual-tranche €3.5bn hybrid. The deal marks a further step
in VW's rehabilitation in the international capital markets and
comes three months after it issued its first euro senior
unsecured transaction since the scandal broke.
"The price and size that VW has achieved today is
remarkable," a lead banker said.
"We had some investors who are still nervous about the
credit, but despite the risks, we had so many accounts placing
orders. VW has been out of the market for so long until recently
investors want to build back their positions."
The company is poised to issue a €1.5bn perpetual non-call
5.5-year bond at a yield of 2.75% and a €2bn perpetual non-call
10 year note at 3.875%. Initial price talk was 3% area and
VW is the latest blue-chip corporate to take advantage of
benign funding conditions, which negated any concerns that
investors might have of further reprisals against the company
from US authorities because of the scandal.
"The market is in such good shape, and there's a feeling of
borrowers wanting to accelerate some of their funding plans,"
the lead said.
The banker added that VW wanted to issue ahead of several
event risks on Thursday, including the UK's general election, an
ECB meeting and former FBI Director James Comey's testimony to
LURING FUNDING COSTS
The company had signalled its intention to issue a hybrid
this year - its first since March 2015 - in an investor call
ahead of its March trade.
The hybrid market has looked brighter in recent months after
taking a knock last year due to fears of changing rating agency
methodologies and soaring funding costs.
"The market is in such good shape. Costs for the product has
come right down so it's a great time for borrowers, while
investors have had such little supply lately it's now in high
demand," the banker said.
That enabled VW to issue at a minimal concession at final
pricing, with bankers pegging it at 10bp, and investors around
"I'm disappointed. Yet again they've been greedy," one
"We pulled our order this morning on the lack of value, plus
VW's senior paper issued in March has been quite volatile since
pricing. Clearly VW paper is not in the same type of investor
hands as before the crisis."
The final levels mean the bonds came about 210bp back of
VW's senior paper, in line with other corporates' hybrid
Like its senior euro transaction issued in March and its
previous hybrids, the deal will also be issued using a
standalone prospectus, which typically allows more flexibility
given fears over further disclosures, bankers said.
"This deal has 100k denominations, which tells you that they
don't want to get retail investors involved in the risks," one
Prior to its crisis, Volkswagen was one of Europe's most
frequent corporate senior and hybrid bond issuers. But after
being locked out of the market for 18-months it is now ramping
its funding back up.
Volkswagen attracted €25bn of demand for its €8bn
multi-tranche bond in March. It then sold a £850m dual-tranche
transaction in April.
Bank of America Merrill Lynch (B&D), Credit Agricole,
Goldman Sachs, HSBC and MUFG are lead managers.
The bonds are expected to be rated Baa2 by Moody's and BBB-
by S&P. The issuer is Volkswagen International Finance NV with
Volkswagen AG acting as guarantor.
The guarantor's senior ratings are A3/BBB+ (both negative
(Reporting By Laura Benitez)