OREANDA-NEWS. Fitch Ratings has assigned Russia-based Volkswagen Bank RUS LLC's (VWBR) upcoming issue of RUB5bn fixed-rate rouble-denominated bonds (series 10) an expected Long-Term rating of 'BBB+(EXP)'. The bonds will have a tenor of five years with the possibility of early redemption at the discretion of the issuer. The coupon rate is yet to be determined. Proceeds from the issues will be used solely for VWBR's corporate purposes.

The issue will benefit from recourse to VWBR's German parent, Volkswagen Financial Services AG (VWFS AG). 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 bond rating is driven by potential support from VWFS AG, a wholly owned subsidiary of Volkswagen AG (VW AG; BBB+/Negative). VWFS AG will provide the PIO to bondholders to buy back the bonds and cover outstanding coupons in case of default by VWBR. 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.

Although unlikely, the PIO could be terminated under certain conditions that are beyond VWFS AG's control, including the 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 of the placement to these quite extreme forms of country risk, the rating of the bonds is capped at a level no higher than two notches above Russia's sovereign ratings (BBB-/Negative).

RATING SENSITIVITIES

Fitch may downgrade VWBR's bond ratings in case of a downgrade of VWAG's ratings.

The downgrade of Russia's sovereign ratings would also likely result in the downgrade of VWBR's bond ratings.