VW bonds reach record highs following Porsche deal image

Volkswagen AG has become more creditworthy for investors after the takeover of Porsche SE. Following the transaction in which VW spent 4.46 billion euros in cash, its bonds reached record levels.

The company’s 1.25 billion euros of 2.75 percent notes due 2015 rose to 104 cents on the euro, cutting the yield to 1.3 percent.

VW’s cash flows will likely be more stable in the future because Porsche’s customers are wealthy people in general and aren’t as impacted by economic downturns,” Frank Hussing, a credit analyst at Commerzbank AG was quoted as saying by Bloomberg. He added that the acquisition of another premium brand would make VW’s group business profile much stronger.

VW aims to overtake GM and Toyota to become the world’s largest carmaker by 2018. Volkswagen CEO Martin Winterkorn values the Porsche business at 20 billion euros. In order to sidestep a tax bill of more than 900 million euros, VW classified the deal as a restructuring rather than a takeover by paying one symbolic VW share on top of the purchase price.

With 2.16 million sales in the first three months of the year, VW is Europe’s largest carmaker and the world’s third, behind GM and Toyota. VW shares rose 12 percent this year, including a 4 percent gain this month, with the company having a market capitalization of 58.7 billion euros.