VW pays up for €1.95B hybrid bond as losses and China weakness bite
What's the deal? Volkswagen Group raised €1.95 billion ($2.2 billion) through two subordinated green hybrid bonds, sold via a financing entity at yields of 7.1% and 7.45%. The German carmaker paid a premium of roughly 2.5% over its senior debt — far above the 67 basis point senior-subordinated spread on European ICE indexes.
Why now? The proceeds will partly refinance two hybrid bonds callable in 2027. Those older notes carry coupons of 3.875% and 3.748%; the new ones cost 6.875% and 7.25%, a sharp jump in the price of flexibility.
The backdrop: VolkswagenDealroom has a profile for this one. Try Dealroom → recently reported a third-quarter operating loss of €5.86 billion, hit by writedowns and restructuring charges. It faces collapsing demand in China, US tariffs, and competition from Chinese EV makers in Europe, while still spending heavily on software, batteries, and new models.
Why buyers showed up: Despite the pressure, order books topped eight times the amount offered in each tranche. Hybrid bonds blend debt and equity features and earn partial equity treatment from rating agencies, bolstering the balance sheet.
"7%+ yield in Euro for a solid IG name with a comfortable cash position is pretty compelling when the EUR BB index shows an average yield of around 5.5%," said Marc Lacraz, portfolio manager at Edmond de Rothschild Asset ManagementDealroom has a profile for this one. Try Dealroom →.
What could go wrong? CreditSights analysts, led by Jim Williamson, said the "VW credit story continues to be dominated by headline risk" and remain cautious on European autos. Replacing cheap debt with high single-digit coupons also raises annual servicing costs on the refinanced portion.
The signal: At nearly €2 billion, this ranks among the largest post-IPO debt deals of its kind in German travel and transport — in the 99th percentile of comparable rounds. But the real story is the cost: investors will lend to VW, just at a price that underscores how much more expensive its capital has become.
Read more: cnbctv18.com
Image credit: jurvetson
