S&P: Volkswagen hybrids BBB

Standard & Poor's said it assigned a BBB long-term issue rating to the proposed five-year non-call and 10-year non-call hybrid notes to be issued by Volkswagen International Finance NV, the Dutch finance subsidiary of Volkswagen AG, which guarantees the notes.

The completion and size of the overall issuance will be subject to market conditions.

S&P said it classifies the two hybrids as having "intermediate" equity content until their first-call dates, falling respectively in 2018 and 2023, because they meet the criteria in terms of their subordination, permanence and optional deferability during this period.

Consequently, in the agency's calculation of Volkswagen's credit ratios, S&P said it treats 50% of the principal outstanding and accrued interest under the hybrids as equity rather than as debt.

The two-notch difference between the BBB rating on the proposed hybrid notes and the A- corporate credit rating on Volkswagen reflects one notch for the subordination of the proposed notes and an additional notch for the optional deferability of interest, the agency said.

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