Volkswagen (VW) has agreed the terms of a €20 billion ($21 billion) bridging loan with banks to help shoulder the costs of its emissions scandal, sources 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 chief executive, 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 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 €150 million in coupon payments and fees, one of the sources said, adding to the company’s financial burden as a result of the scandal.

Thirteen banks have each offered to lend VW either €1.5 billion or €2.5 billion, or a total of €29 billion, sources said.

One source said VW would decide how to allocate the €20 billion it wants to borrow tomorrow. Another source said that would happen in the coming days, without being more specific

Analysts have said securing funding would help signal to investors that VW remains a trusted borrower.

Standard & Poor’s yesterday 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 €2.5 billion and 70 basis points for those offering €1.5 billion, the sources said. – (Reuters)