Volkswagen has been in the press for all the wrong reasons since September when their emissions testing software was first exposed as cheating the results. The company is paying the price with respect to the issue terms of VW bonds around the world as issue yields for VW bond and asset-backed securities (ABS) have risen. However, VW still continues to sell cars and still continues to provide finance to some of the purchasers.
Given the recent financial market turmoil, Volkswagen Financial Services decision to meet with ABS investors has surprised some observers. The meetings are a prelude to the issue of securities, in this case backed by VW car loans, and the term sheet indicates the Class A component is worth $436 million while the Class B component is worth $27 million. Recent ABS issues by VW in offshore markets have cost the company around 50bps more than in the months prior to the scandal breaking and so it would be likely that the same will happen here. VWFS’s last ABS transaction in Australia was in February 2015 and the Class A and Class B securities were issued at 1m BBSW + 75bps and 1m BBSW + 135bps.