Friday, February 27, 2009

Harley Davidson - TALF

An iconic american brand.  

It seems like people still want them, and they still want to finance them.  However, Harley has a finance subsidiary that kept some loans and securitized others.  The last successful securitizetion was in 1Q 2008.  For almost a year, Harley has had the option of holding loans on its balance sheet or cutting back production.

Harley just borrowed $600 million for "general corporate purposes" @ 15% for 6 years.  They need financing to support the additional assets and provide financial stability while they try to get back to something approaching normal.  Per the prospectus:

Harley's top line looks about the same as 2007. The big change is the amount of debt. The debt is to support the "receivables held for sale" which are the loans that *would* have been securitized, had that market not collapsed.
The increase in financial receivables held for sale as of September 28, 2008 compared to September 30, 2007 was due primarily to a reduction in asset backed securitization activity in 2008 due to capital market volatility.

Per the prospectus:
...we are working to gain access to the asset-backed securitization market through the Federal Reserve Bank’s Term Asset-backed securities Loan Facility or “TALF” program. We are researching the program and determining how we may benefit from it. Retail motorcycle loans have been included as eligible.
Anyone that wants to can spend some time researching the business. However, it is basically solid and profitable. It is financially "jammed up" by the credit crunch. It has been able to get by just bulking up on financing assets. However, the financing model won't work for long. They need to sell assets on a regular basis or take some other action. They can only park the financing receivables up to a point -- then their balance sheet goes to hell.

That's why the TALF seems like a good idea.


babar ganesh said...

if i were to guess i'd say they are lending money to people to buy their motorcycles and that their core business depends on this and has depended on this for some time. in that case they (and probably other durable goods producers) have relied on the ability to supply leverage to customers for some years.

what did they do before securitization, and are there other alternative solutions now?

borrowing at 15% seems really harsh by the way.

cap vandal said...

There was a reasonably robust market for their finance sub's asset backed securities. However, it evaporated in last year in the credit meltdown.

They are keeping the debt on their books now, but can't keep doing it indefinitely.

The TALF is the best near term solution. It is just getting started.