S&P: Volkswagen on watch

Standard & Poor’s said it placed the A long-term and A-1 short-term corporate credit ratings on Volkswagen AG on CreditWatch with negative implications.

The agency also said it placed the long-and short-term ratings on the company’s debt instruments on CreditWatch with negative implications.

S&P also said it placed the A long-term and A-1 short-term ratings on Volkswagen’s core subsidiaries, Volkswagen Financial Services AG, Volkswagen Bank GmbH and Volkswagen Group Services SA.

The CreditWatch placement follows news that the company will take a €6.5 billion charge to third-quarter results to cover the costs of a global recall of 11 million vehicles with discrepancies between diesel test results and actual road use, the agency said.

This also follows news that the U.S. Environmental Protection Agency that Volkswagen violated U.S. environmental laws in relation to 482,000 diesel cars sold in the United States from 2009 through 2015.

It appears that the company installed software designed to manipulate the level of emissions and, at least in the United States, circumvent emissions regulations, S&P said.

Substantial remediation costs are expected to be incurred by the company to correct the engines of the cars affected and potentially face material fines from regulators, the agency said.

Criminal charges also may follow in the United States, S&P added.

The group’s leverage metrics will be constrained by this charge, the agency said, its cash flow will be reduced due to these expenses.

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