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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 Wednesday.
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 4.125%-4.25% respectively.
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 Congress.
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 zero.
"I'm disappointed. Yet again they've been greedy," one investor said.
"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 differentials.
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 investor said.
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 outlook). (Reporting By Laura Benitez)