November 5, 2012 / 5:11 PM / 7 years ago

TEXT-S&P rates Volkswagen International Finance N.V.

(The following statement was released by the rating agency)
    Nov 5 - Standard & Poor's Ratings Services said today it assigned its 'BBB'
long-term issue rating to the proposed, three-year mandatory convertible bonds
(MCB) to be issued by Volkswagen International Finance  N.V., a Dutch finance
subsidiary of Germany-based automotive group Volkswagen AG (A-/Positive/A-2),
which is guaranteeing the bonds. 

The completion and size of the MCB placement remain subject to market 
conditions. The total amount is expected to reach EUR2.0 billion. 

According to our criteria (see "Hybrid Capital Handbook: September 2008 
Edition," published Sept. 15, 2008), we classify the MCBs as having "high" 
equity content. This means that, in our calculation of Volkswagen's credit 
ratios, we will treat 100% of the principal outstanding and accrued interest 
under the MCBs as equity-like rather than debt-like. 

We classify the MCBs' equity content as "high" because they have the following 
characteristics:
     -- A three year maturity date (2015);
     -- Our corporate credit rating on the guarantor, Volkswagen, is 
investment grade ('BBB-' or above); and
     -- The documentation includes a conversion price floor that will be no 
less than the share price at the time of initial issuance. 

Thanks to the conversion price floor, the number of shares than can be created 
upon conversion is capped and the likelihood of a material share buyback 
following conversion is limited in our view.

The two-notch differential between our 'BBB' rating on the proposed MCBs and 
our 'A-' corporate credit rating on Volkswagen reflects our criteria, which 
takes into consideration:
     -- A one-notch differential for the proposed bonds' subordination; and
     -- A further one-notch differential for the optional deferability of 
interest. 

 (Caryn Trokie, New York Ratings Unit)
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