Fitch Assigns Volkswagen Bank RUS LLC's RUB5bn Bond Final 'A-' Rating

Wed Jun 25, 2014 9:51am EDT

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(The following statement was released by the rating agency) MOSCOW/LONDON, June 25 (Fitch) Fitch Ratings has assigned Russia-based Volkswagen Bank RUS LLC's (VWBR) RUB5bn five-year issue of fixed-rate rouble-denominated bonds (series 07) a final Long-term rating of 'A-'. The issue benefits from recourse to VWBR's German parent, Volkswagen Financial Services AG (VWFS AG). The bonds have a tenor of five years with a put option in two years. The coupon for the first two years has been set at 9.35%. Proceeds from the issuance will be used solely for VWBR's corporate purposes. Should VWBR fail to make a coupon or principal payment under the terms of the bonds, bondholders will benefit from a public irrevocable offer (PIO) that would allow them to sell the bonds to VWFS AG. KEY RATING DRIVERS The bonds' rating is driven by potential support from VWFS AG, a wholly owned subsidiary of Volkswagen AG (VW AG; A/Stable). VWFS AG has provided the PIO to bondholders to buy back the bonds and cover outstanding coupons in case of default by VWBR. In assigning the rating, Fitch has not relied on the ability of bondholders to enforce the PIO in a Russian court, in case of need. However, the agency believes that VWFS AG, if required, would have a very strong propensity to honour the obligation due to its publicly expressed commitment to do so, potential reputational damage from not honouring the obligation and the importance of the Russian market for the VW Group. The bonds will be settled through the Moscow Exchange, but in the unlikely scenario that this is not possible, settlement will take place through a paying agent, currently Rosbank (BBB+/Negative), which may be replaced if its credit profile deteriorates, or through the direct purchase of the bonds by VWFS AG. Although unlikely, the PIO could be terminated under certain conditions that are beyond VWFS AG's control, including impossibility of payments and settlements in Russia, nationalisation of VWBR, war or revolution, and circumstances under which none of the internationally recognised rating agencies assigns a credit rating to the Russian Federation. Given the exposure of the structure to these quite extreme forms of country risk, the rating of the bonds will be capped at a level two notches higher than Russia's sovereign ratings (BBB/Negative). RATING SENSITIVITIES A weakening of VW AG's and consequently VWFS AG's credit profiles, undermining the latter's ability to pay under the PIO, could lead to a downgrade of the bond issue's rating. The rating could also be downgraded as a result of a downgrade of Russia's sovereign ratings. Upside potential for the bond issue's rating may emerge if Russia's sovereign ratings are upgraded. Contact: Primary Analyst Alexander Danilov Senior Director +7 495 956 2408 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Sergey Popov Associate Director +7 495 956 9981 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Elaine Bailey, London, Tel: +44 203 530 1153, Email: Elaine.Bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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