The Volkswagen headquarters is seen in Wolfsburg, Germany. Europe’s largest automaker is under pressure to strengthen its finances, with analysts expecting it will have to pay out tens of
billions of euros to cover fines, lawsuits and vehicle refits after it admitted to cheating US diesel emissions tests and to falsifying carbon dioxide emissions.

Reuters
Frankfurt/Berlin

Volkswagen has agreed the terms of a €20bn ($21bn) bridging loan with banks to help shoulder the costs of its emissions scandal, three people familiar with the matter told Reuters yesterday.
Europe’s largest automaker is under pressure to strengthen its finances, with analysts expecting it will have to pay out tens of billions of euros to cover fines, lawsuits and vehicle refits after it admitted to cheating US diesel emissions tests and to falsifying carbon dioxide emissions.
The biggest corporate scandal in the German company’s 78 year history has forced out its long-time CEO, wiped billions of euros off its stock market value and hammered its bonds – making it much more expensive for the company to borrow money through its traditionally preferred route of the debt market.
The sources said Volkswagen (VW) hoped its bonds would have returned to more normal levels by next spring, allowing it to issue debt and repay the bridging loan.
The loan and subsequent bond placements will likely cost VW about 150mn euros in coupon payments and fees, one of the sources said, adding to the company’s financial burden as a result of the scandal.
More than two months after VW’s cheating became public, the company is still trying to identify those responsible and organise refits for around 11mn vehicles worldwide.
Regulators and prosecutors around the world are also still conducting investigations, with the company’s Porsche brand confirming on Wednesday that its Italian offices had been searched by prosecutors as part of their inquiry into VW.
VW’s new CEO has said the firm will need to make massive cost cuts, but the company’s majority shareholder spoke out on Wednesday in favour of protecting jobs.
“Jobs are a very valuable asset,” Wolfgang Porsche, chairman of family-owned Porsche Automobil Holding SE, told a gathering of 20,000 workers at VW’s main plant in Wolfsburg.
“This asset mustn’t be squandered,” said Porsche, a member of the VW supervisory board’s influential steering committee.
VW workers are facing growing uncertainty, with sales of its namesake brand in the US plunging by a quarter in November and orders slowing in Europe. Production staff at the VW brand are facing extended 3-week shutdown periods over Christmas at German plants.
However, labour boss Bernd Osterloh said on Wednesday even temporary jobs at the company’s Wolfsburg plant, where VW last year built 836,000 cars, would be safe in the first quarter of 2016.
In an interview with Stern magazine published on Wednesday, VW CEO Matthias Mueller said management board members had agreed to an unspecified cut in pay, acceding to calls from labour representatives for them to share in the belt tightening.
Thirteen banks have each offered to lend VW either €1.5bn or €2.5bn, or a total of €29bn, two of the sources told Reuters, declining to be named because the matter is confidential.
One said VW would decide how to allocate the €20bn it wants to borrow on Friday. Another person said that would happen in the coming days, without being more specific.
VW declined to comment.
Analysts have said securing funding would help signal to investors that VW remains a trusted borrower. Standard & Poor’s on Tuesday downgraded VW’s credit rating to ‘BBB+’ from ‘A-’, following similar moves by peers Fitch and Moody’s.
The bridging loan carries a coupon of 80 basis points over benchmark rates for those banks offering to lend €2.5bn and 70 basis points for those offering €1.5bn, the sources said.
As an incentive for fast repayment, the coupon will rise by 25 basis points after six months and again after nine months, they added.
For each notch that ratings agencies downgrade VW, the firm has agreed to pay an additional 10 basis points, while the minimum rating accepted by the banks is ‘BBB’, they said.
VW has said it plans to issue €12bn in bonds when its conditions for issuing debt improve.
One banker said it wanted the spread on its bonds over the benchmark to narrow to around 100 basis points before it issues debt. VW’s €1.25bn, 3.25% bond due January 2019, which traded at 40 basis points over the benchmark before the scandal, is currently trading at around 138 basis points.
The banks taking part in the bridging loan will organise the bond placements, for which they will be able to charge fees of 20-25 basis points, one of the sources said.