S&P cuts VW’s credit rating
Further drops are possible
FRANKFURT, GERMANY Volkswagen AG’s credit rating was cut one level Monday by Standard & Poor’s, which said the German carmaker’s cheating on U.S. diesel-emissions tests indicates management weaknesses that may lead to a further debt downgrade.
S&P lowered the Wolfsburg, Germany-based company’s rating on long-term debt to A-, the fourthlowest investment grade, from A, and said another cut of as much as two notches is possible.
“VW has demonstrated material deficiencies in its management and governance and general riskmanagement framework,” Alex Herbert, a London-based analyst at S&P, said Monday in a statement. “VW’s internal controls have been shown to be inadequate in preventing or identifying alleged illegal behaviour” and the potential for other violations “represents a significant reputational and financial risk.”
S&P put Volkswagen on watch for a potential downgrade on Sept. 22 following revelations that a line of the automaker’s diesel-powered cars had software installed that was used to fool U.S. emissions testers. As many as 11 million vehicles worldwide may have to be fixed to remove the so-called defeat device.
The manufacturer’s debt was upgraded to A in September 2014. Its top rating from S&P was double-A-, the fourth-highest grade, which it received in 1991, according to data compiled by Bloomberg.
Volkswagen has yet to determine the full cost of the scandal. The company has set aside 6.5 billion euros ($9.6 billion) for repairs and compensation to customers, but has said that won’t be enough. Among lawsuits and regulatory penalties, the U.S. could fine VW as much as $7.4 billion US, Sanford C. Bernstein Ltd. estimates.