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S&P downgrades Volkswagen's credit rating

Credit rating agency S&P has cut Volkswagen's long-term debt rating in light of revelations last month that the German automaker manipulated emissions data by equipping its diesel-powered cars with cheat software.

The international credit rating agency Standard & Poor's (S&P) on Monday said it was downgrading VW's long-term debt rating to A- and could cut "by up to two more notches" again in future in face of the "wide-ranging negative credit consequences following its admission that it installed software designed to manipulate diesel engine exhaust emissions in 11 million vehicles."

The downgrade comes at a time when VW has been struggling to contain the fallout from the company's biggest scandal in history.

Revelations last month that the automaker had installed faulty software in its diesel-powered cars to sidestep tough emissions restrictions caused a huge dent to the firm's reputation worldwide. The company is also facing the prospect of huge fines running into billions of euros.

"We believe that VW's breach of US environmental law and potential other laws outside the US represents a significant reputational and financial risk to VW over the medium term," S&P said in a statement.

VW has already said it will set aside 6.5 billion euros ($7.4 billion) in provisions in the third quarter, but its new chief executive has said that sum would only cover the costs of repairs, and that much more was needed to meet potential fines and damages arising from any lawsuits.

EIB loans

Meanwhile, the European Investment Bank (EIB) said it could demand billions of euros in loans back from Volkswagen, if it determined that Europe's largest carmaker misused its loans to cheat on diesel emissions data.

Since 1990, the EIB has extended loans to VW worth some 4.6 billion euros ($5.2 billion) for the development of cleaner motors and production sites in South America.

"The EIB rules may have been violated, because we have to fulfill certain climate targets with our loans," the bank's chief, Werner Hoyer, told German daily Süddeutsche Zeitung in an interview published Monday.

'Very thorough investigations'

Watch video 01:16

Pötsch to head VW supervisory board

Around 1.8 billion euros of the EIB's loans to VW are still outstanding. Hoyer said the bank would conduct "very thorough investigations" to determine whether VW had used any of the funds for nefarious purposes.

Should that be the case, Hoyer said he and his colleagues at the EIB would "ask ourselves whether we have to demand loans back."

The VW cheating scandal has shaken trust in Germany's automobile industry and

tarnished the country's reputation

for engineering prowess.

Conflict of interest

Former VW CEO Martin Winterkorn stepped down last month, but he did not relinquish his

other positions within the company

, including one as chief executive of Porsche SE, the holding company owned by the Porsche and Piëch families that controls a major stake in Volkswagen.

But now Winterkorn could resign from these other positions as well, according to German media reports.

Winterkorn's successor at VW, Matthias Müller, also works at Porsche SE as head of strategy and business development, and is thus Winterkorn's subordinate. VW has so far said it was up to the supervisory boards of the companies in question to decide whether Winterkorn's involvement represented a conflict of interest.

German media also reported that Winterkorn had analyzed his situation and decided to step down from all of his remaining posts, which also include the chairmanship of VW's luxury brand Audi, its trucks division Scania and the group's Truck & Bus holding.

sri, cjc/hg (Reuters, AFP, dpa)

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