(Adds commentary from lead, investors and banker away)
By Robert Hogg
LONDON, March 23 (IFR) - Volkswagen is leaving nothing to chance for its first euro unsecured bond since the emissions cheating scandal and is offering a handsome premium to ensure the trade goes smoothly.
The automaker is out with a €4bn-plus benchmark split across four bonds, each for a minimum €1bn size.
“It’s a 25bp-30bp new issue premium and I think it looks decent,” said a banker away from the deal. “You can argue the curve is pretty steep, but they need to pay to get a yard in each. It looks reasonable and I think it’ll go really well.”
VW is marketing a two-year floater at 45bp area over three-month Euribor. The issuer is also selling a four-year at 60bp area over mid-swaps, a 6.5-year at 95bp area and a 10-year tranche at 130bp area.
“The initial price thoughts look decent but they need to be,” said one investor.
“At the 10-year point I think VW should trade around 70bp wide of Daimler, especially given the €100k denoms exclude retail investors and the undercurrent of litigation in Europe. That would suggest [fair value of] 110bp for the 10-year.”
A second investor told IFR that the starting point looked fine, but one dynamic to watch was how much slack would be left in the pricing if VW keeps a tight grip on the overall volume. A lead banker would not be drawn on whether there was a headline target size for the trade.
“€1bn-plus means €1bn-plus, so we’ll just see where it goes from there,” said the lead.
VW’s senior spreads blew out by over 200bp after the scandal broke in September 2015, 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.
Its €750m 0.75% August 2020s were bid at swaps plus 38bp on Thursday, according to Tradeweb data, having traded as wide as 259bp after the scandal hit.
The new bonds are expected to price on Thursday via Barclays, BNP Paribas, Citigroup, Mizuho, Societe Generale and UniCredit.
The expected issue ratings are A3 from Moody’s and BBB+ from S&P (both with negative outlooks). (Reporting by Robert Hogg, editing by Helene Durand, Julian Baker)