Fitch gives Volkswagen Bank bonds BBB+

Fitch Ratings said it assigned Volkswagen Bank RUS LLC's upcoming issue of RUB 5 billion fixed-rate ruble-denominated bonds (series 10) an expected long-term rating of BBB+(EXP).

The bonds will have a tenor of five years with the possibility of early redemption at the discretion of the issuer. The coupon rate is yet to be determined.

Proceeds will be used solely for Volkswagen Bank’s corporate purposes.

The issue will benefit from recourse to Volkswagen Bank’s German parent, Volkswagen Financial Services AG. Should Volkswagen Bank fail to make a coupon or principal payment under the terms of the bonds, bondholders will benefit from a public irrevocable offer (PIO) that would allow them to sell the bonds to Volkswagen Financial.

Fitch said the bond rating is driven by potential support from Volkswagen Financial, a wholly owned subsidiary of Volkswagen AG (VW AG; BBB+/negative). Volkswagen Financial will provide the PIO to bondholders to buy back the bonds and cover outstanding coupons in case of default by Volkswagen Bank.

The agency believes that Volkswagen Financial, if required, would have a very strong propensity to honor the obligation due to its publicly expressed commitment to do so, potential reputational damage from not honoring the obligation and the importance of the Russian market for the VW Group.

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