Volvo Car: Looking to Issue €500 mn, 6Y WNG Bond

Jim Williamson - European Autos and Industrials Analyst
Mark Ryan - European Autos and Industrials Analyst

Volvo Car (Ba1/BB+/NR) is looking to crack open the Euro Automotive HY primary market with a €500 mn, 6Y WNG Green bond to be issued under the EMTN program. BofA Securities, Credit Agricole CIB, Deutsche Bank and HSBC have been mandated as Joint Active Bookrunners with a series of fixed income investor calls being arranged for 23rd May, with pricing to follow subject to market conditions.

Volvo Car’s attempt to get a bond out the door will test investor appetite for HY auto paper amid headwinds from lingering component shortages, mounting inflationary pressures and a softening outlook for vehicle demand as real household income feel the pinch from inflation. Elis (Ba2/BB+/NR) – a higher quality double-B credit within the HY Services sector peer group – is a French supplier of linen & workwear rental, laundry services, hygiene and well-being services, and successfully came to market last week. We believe this bodes well for new Volvo Car paper to be well received by the market, given it too is among the higher quality credits within its HY Auto peer group as well. Indeed, IPT for the €300 mn Elis bond in the 4.875% area was quickly jumped on by investors, with strong demand for the deal (books were reportedly >10x covered) driving final pricing to 4.25%, which has firmed further on the break, to yield 4.1%.

The new 6Y Volvo Car bond will extend the existing Volvo Car EUR curve by ~6 months compared with the existing 2.5s of ’27 which were trading lower by more than half a point at a cash price of 93.3 to yield ~3.9% (per Bloomberg) following news of the new deal. The VOVCAB (Ba1/BB+/NR) 2.0s of ’25 currently yield ~3.6%, broadly in line with the slightly higher rated FRFP (Baa3/BB+/NR) 1.5s of ’25 which yield ~3.4%. As a result, with the FRFP 1.0s of ’28 currently yielding ~4.4%, we view fair value for the new 6Y Volvo Car paper to be in the ~4.4% area. While the Elis deal may point to a smaller concession than we may have otherwise expected, we would nonetheless be comfortable using the primary markets as an avenue to add exposure to what is one of the better positioned HY Automotive credits under our coverage.

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