Bentley's UK Factory in Crewe

The growing crisis at Bentley’s parent company, Volkswagen Group (VW), continued this week. While the full extent of VW’s financial and legal obligations haven’t yet been fully determined, the company has begun to make moves to bolster its cash position. Analysts who follow the company’s stock have projected potential expenses related to the scandal to cost the carmaker anywhere from $20B to $120B. So facing unknown expenditures and with their credit rating dropped for the second time in a month, the company secured a $21.1B short term line of credit from a consortium of 13 lenders.

According to Reuters, as part of the agreement VW was forced to pledge assets for sale should they be unable to refinance the loan within one year. People familiar with the matter told Reuters that Ducati, Bentley, and Lamborghini would potentially be on the short list of assets to sell.

“Under the terms, VW assured the lenders it would sell or list assets worth up to significantly more than 20 billion euros if it fails to find other sources of money…” -Reuters

The loan to comes to VW to add liquid cash to the balance sheet of VW in anticipation of fines, lawsuits, and buy backs. It VW buys time to assess the situation, but the company will have only one year to refinance the debt. This would most likely be accomplished by issuing longer term bonds to refinance the line of credit.

The problem with the refinance is VW’s falling credit rating and the unknown liability from the scandal. Should investors be unwilling to participate in a new debt offering by VW within the time frame required, the company would be forced to sell assets.

Bentley Continental GT Factory

The impact of a sale would be significant to Bentley as the company has just launched its first SUV by leveraging VW’s MLB platform, which is shared by other VW brands. Having to find new platforms and partners would upset Bentley’s current product timeline and add to the tumultuous history of the brand.

Assuming Bentley stays under VW ownership, the scandal will still have a significant impact on the company due to spending cuts, particularly in research and development. Bentley executives have been anxious to launch several new projects including an electric or hybrid version of the EXP 10 Speed 6 concept car, a sportier Bentayga, and a $1.5mm+ hyper car.

VW’s spending cuts recently axed plans for a hybrid VW Phaeton foretelling how much the firm can invest in new technology.  Although the Bentayga is expected to be a profitable product for Bentley, it isn’t a given that those profits stay with Bentley for reinvestment.  A raid on the checking account by the corporate parent would also make it difficult for Bentley to grow their current model lineup.  VW had no comment on the matter.

Source: Reuters