S&P Places Volkswagen's A Rating On Review For a Potential Downgrade

Standard & Poor's on Thursday placed its A rating on Volkswagen AG on CreditWatch negative, meaning it could downgrade the rating in the near term. The move comes after the German car maker said it will book a 6.5 billion euro provision to cover the costs of a recall of 11 million cars, after it was found to have used special software to fudge emissions tests. "We expect VW to incur substantial remediation costs to correct the engines of the cars affected and potentially face material fines from regulators," S&P wrote in a statement. "Criminal charges in the U.S. may also follow." The rating agency also placed the ratings on all of VW's core subsidiaries on CreditWatch Negative, including its captive finance arm Volkswagen Financial Services AG (VW FS), its subsidiary Volkswagen Bank GmbH, and finance subsidiary Volkswagen Group Services S.A., as well as its A long-term issuer credit and financial strength ratings on captive insurer Volkswagen Insurance Co. Ltd. S&P said it may lower the company's ratings by one or more notches. "This incident could also indicate a wider industry problem, if other manufacturers have followed similar practices, and it may lead to tougher industry-wide regulations and requirements for diesel engines," said the statement. Volkswagen U.S.-listed ADRs were down 0.9% in premarket trading, while its German shares were higher.

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