TEXT-Fitch affirms Volkswagen at 'A-' on Porsche acquisition

July 5 - Fitch Ratings has affirmed Volkswagen Group's Long-term
Issuer Default Rating (IDR) and senior unsecured notes at 'A-' and Short-term
IDR at 'F2' following its announcement that it will acquire the remaining 49.9%
stake in Porsche AG that it did not own. The Outlook on the
Long-term IDR is Positive. The agency has also affirmed Volkswagen International
Finance NV's senior unsecured debt at 'A-'.

The affirmation reflects the group's significant financial flexibility from its
substantial cash reserves and strong free cash flow (FCF) generation. It is in
line with Fitch's comment on 05 June 2012 revising Volkswagen's Outlook to
Positive from Stable. The agency had already factored this acquisition into its
latest rating action and stated that the group would be able to accommodate the
cash outflow related to expected investments such as the Porsche transaction
without jeopardising its financial profile (see 'Fitch Affirms Daimler and
Volkswagen at 'A-'; Revises Volkswagen's Outlook to Positive' at
www.fitchratings.com).

The transaction will also be positive from a business standpoint as it leads to
the creation of an integrated group, in turn enabling the companies to fully
unlock potential synergies, and freeing up management resource and lifting
uncertainty around this long-standing issue. In particular, Fitch expects closer
cooperation between Porsche and the rest of the Volkswagen group, notably
through savings from purchasing as well as in the development and manufacturing
process.

Volkswagen will purchase the 49.9% of Porsche AG it did not own from Porsche SE
for a total consideration of EUR4.5bn and will also consolidate Porsche's AG net
financial debt of EUR2.5bn (before adjustment for operating leases), leading to
a total immediate negative impact of approximately EUR7bn on Volkswagen's
liquidity. At end-March 2012, Volkswagen reported a EUR15.8bn net cash position
from its industrial operations before adjustment for operating leases (EUR6.4bn
at end-2011). This does not include the acquisition of Ducati in Q212 for an
estimated EUR860m, nor the positive FCF expected by Fitch to be generated in the
quarter. In 2012 overall, the agency expects the cost of the various
acquisitions to be mitigated by the group's extremely solid underlying funds
from operations and FCF.

The consolidation of Porsche AG will be effective on 1 August 2012 and will lead
to a EUR9bn positive non-cash income in Volkswagen's P&L from the re-measurement
of Volkswagen's current stake.

Financial flexibility has diminished in the current ratings but an upgrade
remains possible in the next 12-18 months if Volkswagen sustains the improvement
of its key financial metrics, including operating margins above 4% and 5% (at
industrial and group level, respectively), adjusted gross leverage below 1x and
cash from operations on adjusted gross debt above 60%, all from industrial
operations.

The Outlook could be revised back to Stable in case of further aggressive M&A or
accelerated capex investments, in particular if it occurs during a sharp
slowdown. A significant deterioration of credit metrics, including operating
margins below 2% and 3% (at industrial and group level, respectively), and
adjusted industrial gross leverage above 2x on a sustainable basis could also
lead to negative rating pressure.Additional information is available at www.fitchratings.com.

The ratings above were unsolicited and have been provided by Fitch as a service
to investors.

The issuer did not participate in the rating process, or provide additional
information, beyond the issuer's available public disclosure.

Applicable criteria, 'Corporate Ratings Criteria', dated 13 August 2010 is
available at www.fitchratings.com.

Applicable Criteria and Related Research:
Corporate Rating Methodology