Credit-default swaps spreads on Volkswagen widened about 10 basis points ahead of the company's EUR4.5 billion (USD5.1 billion) bond offering, with trading remaining volatile as the company increased the size of the deal before pricing. Traders said swaps were trading at about 53 basis points two weeks ago and as the deal was announced began to inch out. On Monday, spreads widened to 75 basis points from the low 60s, traders said. "Before the deal priced [on Tuesday], the spreads bounced around, especially when the size of the deal changed," noted one trader. The initial size of the offering was EUR3 billion and at one time during the pricing it looked like it was going to be increased to as much as EUR5 billion, traders said.
Traders said volumes were up dramatically against the backdrop of a relatively slow beginning of the week. On Wednesday and Thursday, however, trading picked up across the board as names blew out in general, particularly in the auto and telecom sectors.
Michie Yana, senior credit analyst at Commerzbank Securities in London, said Volkswagen faces a challenging year. "There are three potential soft spots," she said, explaining that the first is the company's foreign currency exposure, which is what resulted in its first quarter revenue and profit weakness. Additionally, if the SARS crisis lasts longer than anticipated it will be detrimental to one of Volkswagen's bright spots, its joint ventures in China. Lastly, there is uncertainty over how the company's remodeled Golf will be received.