Volkswagen subsidiary Volkswagen International Finance N.V. is in the market with a benchmark three- and five-year bond offering. Volkswagen Finance issued three-year bonds in March at a spread of 114 basis points above Treasuries and five-years at +135, and these bonds are currently indicated at about 73 and 93 basis points above Treasuries, respectively. Daimler’s DAI (rating: BBB+) finance sub’s three-year bonds issued in April at a 108 basis point spread are now indicated at a spread of 113, which is fairly valued.
It’s also worth noting that Honda subsidiary American Honda Finance has 2015 maturity bonds indicated at about 63 basis points above Treasuries and 2017s at a spread of 75. Finally, Toyota’s finance sub’s three- and five-year bonds are indicated at +40 and +56, respectively, which could be viewed as slightly rich.
We recently increased our equity fair value estimate on Volkswagen due to an increase in our revenue per unit assumptions over our five-year forecast horizon. While we haven’t changed our credit rating, the equity upgrade is indicative of Volkswagen’s success in navigating through challenging European and Chinese automobile markets. The firm’s geographic and product diversity—including product offerings in practically every vehicle segment—tends to lower the risk of exposure to a specific market or price point.
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