Volkswagen Bank to use ABS collateral in ECB tender

FRANKFURT, Nov 10 (Reuters) - Volkswagen Bank GmbH (VOWG.DE) plans to tap the European Central Bank for liquidity next month using some 2.8 billion euros ($3.6 billion) in securities backed by German car loansas collateral, a spokesman said on Monday.

The Braunschweig-based lender, a unit of Volkswagen's financial services division, expects the so-called "haircut" for using the assets at the ECB's December tender of three-month funds to be 16.4 percent due to the quality of its asset-backed securities (ABS).

This means the VW Bank will be able to borrow around 2.35 billion euros in funds if it deposits the full 2.8 billion euros of collateral. Typical ECB haircuts for ABS range up to 18 percent, though additional surcharges may apply too.

Euro zone banks have become increasingly dependent on the ECB for financing over the past year, as the credit crisis has made it hard to raise short-term financing.

"This is the first time that we participate in this form in an ECB tender," a spokesman for VW Financial Services said.

The ECB's collateral rules raised eyebrows in July when it emerged that securities backed by car loans issued by Australia's Macquarie Group (MQG.AX) were eligible to be used in ECB refinancing operations.

VW's transaction is split into three large tranches of 936 million euros each -- called "Private Driver 2008" and numbered serially 2 through 4 -- and are assigned AAA by Moody's credit rating agency.

It also includes a fourth tranche, but the volume is a fraction by comparison with just 31 million euros.

The ECB's rules on collateral are more flexible than those of other major central banks, and allow ABS as collateral dependent on a case-by-case assessment of the haircut and a rating of at least 'A minus'.

Volkswagen Financial Services AG refinanced some 14 percent of its operations through the ABS market, but the credit crunch has made it extremely difficult to issue asset-backed securities at favourable terms in large public placements. (Reporting by Christiaan Hetzner and Jan Schwartz; Additional reporting by David Milliken; Editing by Sharon Lindores)