As a reward for completion of successful restructuring since the banking crisis, Harley-Davidson has had its key Issuer Default Rating (IDR) upgraded by leading US ratings agency Fitch from A-minus to A.
Fitch says this move reflects the motorcycle manufacturer’s strengthened credit profile after it paid off a final tranche of $303m (£185.4m) in senior unsecured notes on 3 February this year, leaving the main company entirely debt-free. The agency also cited Harley’s leading position in the US heavyweight motorcycle segment, strong cash liquidity position, relatively high margins, well-funded pension plans and conservative financial policies as contributory factors in the decision.
All remaining debt appertaining to Harley operations is now ring-fenced at its Harley-Davidson Financial Services (HDFS) subsidiary, the brand’s point-of-sale consumer credit and dealer inventory funding arm, to which the IDR upgrade also applies. In addition, Fitch has elevated Harley’s short-term rating to F1 and announced that the overall rating outlook for both the parent and HDFS is now stable.
Harley’s rocky road to recovery dates back to early 2009, when the global securitisation market dried up in the wake of the banking crisis. Precluded from securitising its consumer and dealer loan book as bonds to roll over financial resources, HDFS was temporarily unable offer crucial point-of-sale funding facilities to US dealers, so the brand’s domestic sales plummeted. To dig itself out of this hole, Harley was forced to fall back on the US government’s Troubled Asset Relief Programme (TARP) and also seek large quantities of high-interest distress borrowing. The Fitch upgrades signals an end to that burden, with the slate wiped clean.