FRANKFURT (Reuters) - Volkswagen is hoping to return to the bond market as early as May, people familiar with the matter said, aiming to raise billions of euros to replace the costly bank loan it has been relying on in the wake of its emissions test cheating scandal.

Signage at a Volkswagen dealership is seen in London, Britain, March 30, 2016. REUTERS/Toby Melville

Europe’s biggest carmaker has been effectively shut out of the unsecured bond market since September, when it admitted to rigging U.S. diesel emissions tests.

Investors have been put off by uncertainty over the costs of the scandal, which could run into tens of billions of euros in regulatory fines, vehicle refit costs and lawsuits. That has left the German company relying on an expensive 20 billion euro ($23 billion) bridging loan agreed with banks in December.

With the publication of its annual results on April 28, however, Volkswagen (VW) hopes to provide some clarity on costs.

“Volkswagen has started talking to banks, and a first issuance may take place right after the publication,” one of the sources said, speaking on condition of anonymity as the matter isn’t public.

“The provisions figure (VW’s estimated cost of the scandal) will enable bond investors to do their math,” another said.

A VW spokesman said on Monday the company expected to issue debt on capital markets before the end of June.

Ahead of its results, VW VOWG_p.DE and U.S. regulators have been set an April 21 deadline by a federal judge to agree a fix for the nearly 600,000 cars affected in the United States.

Such an agreement will be key to VW putting a cost on the scandal. The company postponed its 2015 results in February, saying it was not yet in a position to give a precise figure.

“As soon as VW strikes a settlement, it will start a roadshow and we may see the issuance of an unsecured bond within one or two weeks”, one of the sources said, adding the carmaker might look to raise 3-4 billion euros.

“VW is keen to come to the market ... markets are on fire”, another source said, adding the size of the issuance was unclear and would likely depend on the terms VW can secure.

Conditions for a return to the bond market appear favorable, as auto bond spreads .IBBEU0029 have decreased by more than 30 basis points since the European Central Bank's announcement to expand its asset purchasing program. Investors expect VW bonds to qualify for this program.

While not at risk running out of funds, as it has used the securitization market and still has plenty of unused credit lines, VW is keen to issue unsecured debt before the summer break as relying on loans is becoming increasingly costly.

The company has only drawn about 8 billion euros of the 20 billion euro bridging loan and could continue to rely on the facility, two of the sources said.

However, the one-year loan is relatively expensive with a coupon of 70-80 basis points over the benchmark Euribor rate, and gets even more costly over time as the coupon automatically increases by 25 basis points six months after issuance and again after nine months.

By comparison, the coupons for the 1.5 billion euros of five and two-year bonds its subsidiary Volkswagen Leasing issued in August 2015 stand at 0.75 percent and 27 basis points over the money market benchmark.

Banks which have committed to the larger of two tranches in the bridging loan will be rewarded by getting roles in organizing the return to the debt market, the sources said.

Barclays, BNP Paribas, Societe Generale, Citi, Unicredit, HSBC, Bank of Tokyo Mitsubishi and Mizuho all offered up to 2.5 billion euros in the bridging loan. Barclays, BNP and SocGen are seen as having a good chance of being picked as bookrunners to lead the debt issue, the sources said.

Separately, VW management and labor leaders on Monday sought to quell a dispute over cost cutting at the core VW brand division by pledging to jointly map out a strategy.

Both sides will aim to agree “packages” to secure factories in Germany, the company said, without giving details about what the deals might involve.

VW’s influential works council boss Bernd Osterloh last week called for fixed targets and quotas for products, output and investments to help secure local jobs.

The carmaker’s management said on Monday steps to safeguard German factories would entail “short and medium-term measures and investments,” without elaborating.