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Rating Action:

Moody's assigns A3 rating to Volkswagen's bond issues

30 Mar 2011

New bond issues

Frankfurt am Main, March 30, 2011 -- Moody's Investors Service has today assigned A3 long-term ratings to Volkswagen's ("VW") USD bond issues.

The bonds are issued by VW's wholly owned subsidiary Volkswagen International Finance N.V. benefiting from an unconditional and irrevocable guarantee of Volkswagen Aktiengesellschaft (A3/P-2).

SUMMARY OF THE BONDS:

Issuer: Volkswagen International Finance N.V.

Issue: USD700 million 1.875% Notes Series A due 2014

Gaurantor: Volkswagen Aktiengesellschaft ("VW AG")

Guarantee: unconditionally guaranteed by VW AG

Issuer: Volkswagen International Finance N.V.

Issue: USD650 million 2.875% Notes Series B due 2016

Gaurantor: Volkswagen Aktiengesellschaft ("VW AG")

Guarantee: unconditionally guaranteed by VW AG

Issuer: Volkswagen International Finance N.V.

Issue: USD500 million floating plus 0.45% per annum Notes Series C due 2012

Gaurantor: Volkswagen Aktiengesellschaft ("VW AG")

Guarantee: unconditionally guaranteed by VW AG

Issuer: Volkswagen International Finance N.V.

Issue: USD850 million floating plus 0.61% per annum Notes Series D due 2014

Gaurantor: Volkswagen Aktiengesellschaft ("VW AG")

Guarantee: unconditionally guaranteed by VW AG

RATINGS RATIONALE

"The rating reflects that the planned bond will be unconditional and irrevocably guaranteed by Volkswagen AG. Consequently, the provisional rating of the planned bond is at the same level as the parent's senior unsecured issuer rating," says Falk Frey, a Moody's Senior Vice President and lead analyst for Volkswagen.

VW's rating is supported by its strong competitive position with a diverse product range, high brand recognition and successful model launches over recent years. Despite the deterioration in the group's operating performance during the industry downturn in late 2008 and 2009, VW's financial metrics proved to be more resilient than those of its European automotive peers. The group benefited in particular from being the principal beneficiary of European scrappage schemes, a good product offering and leading market positions in China and Brazil.

However, the rating remains constrained by the cyclicality of global auto demand and its dependence on the overall global economic environment. In Moody's view the uncertainty surrounding the strength and sustainability of the current economic recovery in emerging markets like China and Brazil remains high.

Moreover, profitability needs to contend with intense price competition in the industry, continued high R&D needs for alternative drivetrains and the volatility of raw material prices and foreign exchange rates. VW's ability to generate positive free cash flow (FCF) will likely be challenged by a pick-up in working capital and capex needs.

Nonetheless, the company's solid competitive position should in Moody's view support future sales growth and credit metrics consistently within the A3 rating category.

In addition, the rating incorporates Moody's expectation of a smooth integration of both Porsche and Porsche Holding Salzburg into VW and the group's ability to maintain its financial flexibility in line with an A3 rating during the multi-stage transaction process. Moody's cautions that it will be crucial for VW to maintain its operational excellence and adequate allocation of management resources despite multiple development projects.

The A3 rating anticipates VW to still maintain financial ratios such as (i) a material positive operating income over the next few years; (ii) a positive free cash flow in the automotive business after dividend payout; (iii) as well as Net Debt/EBITDA no more than 1.0x in 2011 and (iv) interest coverage ratio at least 4.5x in 2011 (all ratios as adjusted by Moody's).

An upgrade over the short to medium term is unlikely in Moody's view. However, the ratings could be upgraded in case of (i) a market share development which is at least stable in key markets driven by the successful penetration in emerging markets; (ii) sustainable free cash flow generation despite rising capital expenditure needs evidenced by FCF/ Debt ratio around 10.0%; (iii) as well as sustained key credit metrics like EBITA margin > 7.0%, Interest Cover > 7.0x, Debt/Capital of around 40%.

The principal methodology used in this rating of Volkswagen was Moody's "Global Automobile Manufacturer Industry Methodology", published in December 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in Wolfsburg, Germany, Volkswagen is Western Europe's largest car manufacturer in terms of unit sales with a market share of 21% in 2010 and ranks number two globally with a market share of 11.4% in 2010. VW manufacturers mass-market and premium cars under the Volkswagen, Škoda, Seat, Audi, Bentley, Lamborghini and Bugatti brands, as well as commercial vehicles under the Volkswagen and Scania brands. In addition, VW has a 49.9% holding in Porsche AG, a 28.7% stake in MAN SE and a 19.9% stake in Suzuki. In 2010, the group delivered 7.3 million vehicles and had group revenues of nearly EUR127 billion. Through its subsidiaries, Volkswagen Financial Services and LeasePlan, VW also provides the full range of financing, leasing, fleet and rental services. Volkswagen Bank GmbH (A2/P-1/C-/STA), a 100% indirectly owned subsidiary, holds a banking license and offers retail banking services.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns A3 rating to Volkswagen's bond issues
No Related Data.
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