Volkswagen's ratings affirmed with a negative outlook by Fitch

Volkswagen AG's long-term issuer default rating (IDR) of 'BBB+' and short-term IDR of 'F2' have been affirmed by Fitch Ratings, which cites the vehicle-emissions scandal that has rattled confidence in the German automaker.

Fitch said the outlook on Volkswagen's long-term IDR was negative.

"Volkswagen's profitability fell significantly in 2015 as a result of €16.2bn of provisions booked to cover risks stemming from the emissions crisis and we expect free cash flow (FCF) to be significantly affected until at least 2018," said the ratings agency.

It assumed extraordinary cash outflows related to the diesel issue of €12bn in 2016, leading to a negative 2.9% FCF margin, and a further EUR5bn in 2017.

"However, the ratings also reflect the group's resilience in the face of this crisis and the greater visibility that has developed in the past few weeks about the magnitude of the scandal's cost," Fitch said in a statement.

Although full details of the €16.2bn provision booked for the emissions crisis were not publicly available and Fitch expected further charges in 2016 and possibly 2017 for yet unknown compensation claims, litigation costs and criminal and regulatory liabilities, it believed that visibility of the total cost of the crisis had moderately improved.

"Some uncertainty remains about the total amount and timespan of cash outflows, but we believe that our latest estimates remain manageable for the group at the current rating," it said.

"Volkswagen's financial structure is robust, including low funds from operations (FFO) adjusted net leverage, which we project to increase slightly above 0x in 2016.

"In addition, we believe that Volkswagen has the ability to cut or postpone capex and dividends and sell assets to limit the effect on its financial profile in case of a material increase of the total costs of the crisis."

Fitch said its negative outlook on the long-term IDR reflected the possibility of further important findings to be uncovered as a result of ongoing investigations, the remaining uncertainty regarding the final impact of all criminal and regulatory liabilities and the potential for further reputational damage to the group and its brands.

"An upgrade is unlikely in the absence of stronger internal control and corporate governance, in line with main peers," Fitch said.