Frankfurt am Main, March 26, 2021 -- Moody's Investors Service ("Moody's") has today
changed the outlook on the ratings of Volkswagen Aktiengesellschaft (Volkswagen)
to stable from negative. Concurrently, Moody's has
affirmed all ratings of Volkswagen and its subsidiaries, including
Volkswagen's long-term issuer rating of A3 and its short-term
Prime-2 (P-2) commercial paper rating.
A full list of affected ratings can be found at the end of this press
release.
"The change in outlook reflects the continued recovery in global
light vehicle sales, the expectation that Volkswagen will be able
to further improve its credit metrics in 2021-22, and the
company's ability to reduce CO2 emissions to levels very close to
the stricter targets in 2021." said Matthias Heck,
a Moody's Vice President -- Senior Credit Officer and Lead
Analyst for Volkswagen. "The rating affirmation balances
the company's strengths as one of the world's two largest
automotive manufacturers, and it's robust free cash flow generation,
with the overall challenges in the automotive industry, especially
its high cyclicality and the trend towards electrification."
added Mr. Heck.
RATINGS RATIONALE
The outlook change to stable reflects Moody's expectation of a continued
recovery in global light vehicle sales which Moody's expects to
lead to an annual increase in global light vehicle sales of 7%
in 2021 and 6% in 2022, despite short-term challenges
in the first half of 2021, such as the delayed vaccination process
in many countries and the shortage in semiconductor supply. On
the back of this recovery, Volkswagen should be able to improve
Moody's adjusted EBITA margins towards 7% in 2021 (6.0%
in 2020), maintain debt/EBITDA (Moody's adjusted) below 2.5x
(2.8x in 2020), and generate positive free cash flow (Moody's
adjusted) also in 2021. The stabilization also reflects Volkswagen's
considerable reduction of its fleet CO2 emissions to levels very close
to stricter CO2 targets in the EU in 2020, and the expectation of
full compliance also in 2021.
The rating affirmation reflects Volkswagen's (1) robust portfolio
of highly recognizable brands and established market positions in Western
Europe and China, where its main brand, Volkswagen Passenger
Cars, generally benefits from a pricing advantage over other volume
brands; (2) it's generally successful and frequent model launches;
(3) its geographic diversification and good product offering that help
shield the group's earnings and cash flow from local or regional demand
cycles, which are inherent to the automotive industry; (4)
our expectation of sustainable, positive and robust free cash flow
(FCF) generation (adjusted for the outflows related to the diesel issue),
despite high investments, and (5) the company's sizeable liquidity
position.
Volkswagen's rating further reflects our expectation that the company
should be in a position to return to meaningful operating profit generation
and to return to credit metrics appropriate for its rating by year-end
2021 already. During 2020, Volkswagen's Moody's
adjusted EBITA margin fell to 6%, compared with 8.3%
in 2019. However, Volkswagen should be able to restore its
metrics to appropriate levels by 2021 considering its remarkable track
record of sustainable performance against most peers over the last years.
The group's global reach across a multitude of brands and model
types while simultaneously using its large scale to efficiently deploy
and use resources should allow it sufficient operating leverage to quickly
recover profitability. We also note the group's material
exposure to the Chinese market, which has been more resilient during
the 2020 crisis and which has recovered quicker compared to other regions
of the world.
Volkswagen's ratings are constrained by (1) the high cyclicality
of the automotive industry, (2) the remainder of legal and remediation
costs associated with the diesel emission issue; (3) globally increasing
environmental standards, stricter emissions regulation and electrification,
which require high investments into R&D and new model launches;
and (4) the complexity within the group, given the global scale
of Volkswagen, its multiple brands and product strategy, as
well as expanded operations within the global trucks market.
Moody's expects that Volkswagen - through its focus on the
currently more resilient Chinese market and its position as a leading
premium car manufacturer - should continue to show strongly recovering
operating profit generation. Based on Moody's expected revenue
and margin recovery, Volkswagen's Moody's-adjusted
debt/EBITDA should decline to below 2.5x as of December 2021.
With this, the group will return to credit metrics appropriate for
its rating category in 2021 already.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Volkswagen's ratings could be downgraded in case of the inability
to (1) restore Moody's-adjusted EBITA margin to above 7%,
(2) to reduce Moody's-adjusted debt/EBITDA to below 2.5x;
(3) demonstrate a return to its historically strong free cash flow generation
(as adjusted by Moody's) resulting in (4) FCF/debt below the mid-single-digit
range in percentage terms for a prolonged period as a result of an operational
weakness or more aggressive financial policies. Also, an
erosion in Volkswagen's market shares in its core markets as well
as its inability to enhance Volkswagen Passenger Cars' profitability to
a more competitive level on a sustained basis and a weakening of the company's
liquidity profile could lead to a downgrade.
Moody's would consider upgrading the ratings in case of (1) Volkswagen's
ability to, at least, protect its market share in the major
markets where it operates, especially in Western Europe and China,
regardless of potential changes in global macroeconomic conditions;
(2) a significantly improved competitive position for the Volkswagen Passenger
Cars brand and in the US market; (3) a more consistent earnings pattern
across its commercial vehicle brands as a result of the successful execution
of its long-term plan for the division, (4) the implementation
of more stringent corporate governance structures; (5) a sustained
robust cash flow generation, despite elevated capital spending,
with Moody's-adjusted FCF/debt of around 10% as well as
(6) a Moody's-adjusted EBITA margin sustainably above 7%.
LIST OF AFFECTED RATINGS:
..Issuer: Porsche Holding Gesellschaft m.b.H.
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
Outlook Actions:
....No Outlook
..Issuer: Volkswagen Aktiengesellschaft
Affirmations:
.... LT Issuer Rating, Affirmed A3
....Senior Unsecured Bank Credit Facility,
Affirmed A3
....Commercial Paper, Affirmed P-2
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A3
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: Volkswagen Group Canada, Inc.
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
Outlook Actions:
....No Outlook
..Issuer: Volkswagen Group of America Finance,
LLC
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A3
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: Volkswagen Group of America, Inc.
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
Outlook Actions:
....No Outlook
..Issuer: Volkswagen International Belgium S.A.
Affirmations:
....Commercial Paper, Affirmed P-2
....Other Short Term, Affirmed P-2
Outlook Actions:
....No Outlook
..Issuer: Volkswagen International Finance N.V.
Affirmations:
....BACKED Junior Subordinate Regular Bond/Debenture,
Affirmed Baa2
....BACKED Commercial Paper, Affirmed
P-2
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)A3
....BACKED Other Short Term, Affirmed
(P)P-2
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A3
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: Volkswagen International Luxemburg S.A
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
Outlook Actions:
....No Outlook
..Issuer: VW Credit Canada, Inc.
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)A3
....BACKED Other Short Term, Affirmed
(P)P-2
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A3
Outlook Actions:
....Outlook, Changed To Stable From
Negative
..Issuer: VW Credit, Inc.
Affirmations:
....BACKED Commercial Paper, Affirmed
P-2
....BACKED Senior Unsecured Medium-Term
Note Program, Affirmed (P)A3
....BACKED Other Short Term, Affirmed
(P)P-2
Outlook Actions:
....Outlook, Changed To Stable From
Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062773.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Volkswagen Aktiengesellschaft, headquartered in Wolfsburg,
Germany, is Europe's largest car manufacturer in terms of passenger
car unit sales, with a market share of 25% in 2020 in Europe
(according to the European Automobile Manufacturers Association) and one
of the two largest globally, marginally below Toyota Motor Corporation
(A1/P-1 stable).
In 2020, Volkswagen delivered 9.3 million vehicles to its
customers (11.0 million in 2019). Volkswagen generates the
vast majority of its unit sales in Europe and other regions (43%
in 2020) as well as Asia-Pacific (44%, largely China),
followed by North America (8%) and South America (5%).
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Matthias Heck, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
