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Monday, 21 April 2014

VW breeds investor loyalty

In the broken post credit crisis world of secuitisation, few players have been able to access the market, and those that have only managed it under questionable circumstances. Volkswagen stood head and shoulders above other borrowers with a remarkable string of undisputable successes – in both securitisations and the senior bond market. William Thornhill and Andrew Perrin report.

Volkswagen’s ability to access the securitisation market reflects the loyalty of its investor base – a fact that other securitisation borrowers need to sit up and take notice of. In the pre-crisis world of leveraged demand, it was all too easy for borrowers to forget the importance of maintaining a good long-term relationship with investors. Breeding loyalty is about integrity, honesty and trust.

"We are a frequent issuer and feel we have a certain responsibility towards the market," Stefan Rolf, head of Volkswagen Financial Services' ABS team stated in January.

From the mouths of many prolific issuers of certain regions, these would sound like empty words. Regrettably, many issuers are still taking their investors for granted. But at some point, these words will come to differentiate the winners from the losers in today's post credit crisis world, where access to liquidity grants survival.

In testimony to its success, VW has issued six deals worth over US$6bn since the credit crisis begun. These transactions were not infrequently oversubscribed and upsized.

In November 2007 VW Leasing issued the €970m VCL 10, the first deal to price successfully price in the European ABS market since the summer without pre-placement of any tranches.

A month later in December it issued the €250m Private Driver, a transaction that speaks to investors not wanting volatility in their portfolios, as the Schuldschein notes backing it, do not have to be marked to market.

Two months later in January 2008 VW Bank performed a miracle by placing

€1.2bn Driver 5. The deal priced tighter than initial guidance and was increased.

Again in February, just when the securitisation market was at its nadir, the borrower priced the £500m Driver UK One, in line with guidance on an oversubscribed book.

In May it returned, this time to the US market, with its US$1bn (VALET) 2008-1 which also enjoyed a blow-out reception. It followed up in the same month with another Schuldschein backed European private deal, the €245m Private Driver 2008-1.

Among these deals Driver 5 and VCL 10 stood out as being particularly merit worthy.

VCL 10, via West LB, was the first European deal to price since the onset of the credit crisis. The 1.4-year Triple A piece priced at the tight end of guidance at one month Euribor plus 37bp and was 2.2 times covered.

Driver 5, via RBS (ABN AMRO) and HSBC, was notable for being the first public European securitisation of 2008 and one that had to overcome considerable odds to make it to market.

The 1.95-year Triple A piece was increased from €934m to €1.214bn and was twice covered, pricing at the tight end of guidance at three month Euribor plus 58bp.

The A3/A- rated car maker also played a crucial role in the senior bond market last year, successfully re-opening the sector in October 2007, amid the credit crisis, through its leasing unit, with a €1.25bn 4.875% October 2012 transaction via Barclays Capital, Deutsche Bank, DZ Bank and SG CIB.

The transaction printed at mid-swaps plus 47bp on the back of a total order book of €6.6bn. Apart from kick starting the primary auto sector post summer, the issue was also notable for the fact that at 19.5bp, the negative basis was the lowest in the midst of a flow of corporate issuance, reflecting increased investor confidence coupled with the credit quality of the group.

Volkswagen was then absent from the market until early May 2008 with what represented another milestone issue, this time re-opening the automotive Eurobond market in 2008. The group targeted the three-year part of the curve this time around with the help of HSBC, RBS and UniCredit, placing €1.25bn of 5.125% May 2011 bonds at mid-swaps plus 75bp, the tight end of revised guidance of plus 75-80bp on a total order book of €4.5bn. The bid from domestic accounts was particularly notable with around 40% of the paper placed within Germany.

The borrower followed this up in June 2008 through its finance arm VW Bank, rated A2/A. The group was one of a handful of issuers that raised two-year funds following the shift in the inverted swaps curve, the two-year yield rising above 5.50%. VW Bank subsequently offered a coupon of 5.75% on an issue that was always capped at €500m, attracting €1.1bn of demand in the process. The deal priced at a spread of mid-swaps plus 48bp, with Deutsche Bank and ING the joint lead-managers.

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