Harley-Davidson Announces Strategic Financial Transaction

By Greg Peters • Monday, August 11 10:14 • Permanent Link

Harley-Davidson Financial Services (HDFS) has announced a strategic transaction that is expected to bring significant changes to its financials. Here are some key highlights of the transaction:

HDFS has agreed to sell a 4.9% common equity interest to investment vehicles managed by KKR and PIMCO, totaling a 9.8% stake by strategic partners.
The transaction is set to unlock $1.25 billion in discretionary cash, representing approximately 40% of current Harley-Davidson market capitalization.
HDFS plans to sell approximately two-thirds of its future retail loan originations at a premium annually for the next five years.
The company expects to use a portion of the proceeds to reduce indebtedness and optimize its post-transaction capital structure.

In terms of valuation and financial impact: The post-transaction HDFS valuation is estimated at approximately 1.75x Price/Book multiple, reflecting an attractive premium. HDFS has agreed to sell over $5 billion of existing gross consumer retail loan receivables and residual interests in securitized consumer loan receivables at a premium, generating significant available cash. * The company anticipates a significantly increased return on equity and double-digit operating income growth starting in 2027.

The transaction is also set to transform HDFS into a "capital-light" model, with strategic partners purchasing a significant portion of the loan portfolio. HDFS expects to continue offering a range of financial products and services, including retail and wholesale loans, insurance products, and co-branded credit card programs.

The strategic partners involved in the transaction, KKR and PIMCO, are expected to provide improved underwriting, pricing, and funding capabilities. This partnership is aimed at reducing the capital intensity of HDFS and shifting credit risk from HDFS to the investment vehicles managed by the partners.

Following these announcements, the company's shares moved 0.54%, and are now trading at a price of $24.22. For the full picture, make sure to review HARLEY-DAVIDSON, INC.'s 8-K report.

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