Fitch Affirms Volkswagen Bank RUS LLC's Bonds at 'BBB+', off RWN
KEY RATING DRIVERS
Today's rating action follows a downgrade of the parent VWAG by two notches (see "Fitch Downgrades Volkswagen to 'BBB+'; Outlook Negative" dated 9 November 2015 at www.fitchratings.com), aligning VWBR's bond ratings with VWAG's.
The RWN on VWBR's bonds reflected a risk of a downgrade of the parent by more than two notches, in which case VWBR's bonds rating would have been also downgraded. However, as VWAG's downgrade was limited to two notches VWBR's rating was affirmed at current level.
VWBR's bond ratings are driven by potential support from Volkswagen Financial Services AG (VWFS AG), a wholly owned subsidiary of VWAG. 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.
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 further downgrade of VWAG's ratings.
The downgrade of Russia's sovereign ratings and/or termination of PIO may also result in the downgrade of VWBR's bond ratings.
Although unlikely in the near-term given the Negative Outlooks on both VWAG's and Russia's ratings, the upgrade of Russia's sovereign ratings in conjunction with the upgrade of VWAG's ratings could lead to an upgrade of VWBR's bond ratings.
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