Harley-Davidson Loaned $2.3 Billion from Fed

December 2, 2010
Bart Madson
By Bart Madson
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Bashing away at the MotoUSA keyboard for nine years now, Madson lends his scribbling and editorial input on everything from bike reviews to industry analysis and motorcycle racing reports.

Documents released by the Federal Reserve disclose who benefited from a government loan program during the financial crisis of 2008. The data shows what companies the Federal Reserve purchased commercial paper from with its Commercial Paper Funding Facility (CPFF). Among those accepting the credit boost was motorcycle manufacturer Harley-Davidson. The Motor Company took the Fed up on its emergency lending on 33 separate occasions in 2008 and 2009 to the tune of $2.3 billion.

Harley Davidson Motorcycles
Documents released by the Federal Reserve disclose loaned $2.3 billion from the Fed during the 2008 financial crisis.

Commercial paper is a routine short-term funding method for companies to cover operating expenses, like payroll and rent. Increases in the issuing of commercial paper can be seen as a positive sign, as companies may be generating the funds to ramp up production and pay new hires and increase inventories. During the credit crisis in 2008, this positive scenario was not the case. The normally liquid commercial paper market had frozen with risk-averse private investment sources, like mutual funds, unwilling to lend.

The government, in the form of the Federal Reserve, stepped in with the establishment of the CPFF in October 2008. The Federal Reserve Bank of New York created the CPFF Limited Liability Company, which administered the paper purchase program. It began lending (by purchasing the beleaguered company’s issued commercial paper) on October 27, 2008 and closed on February 1, 2010. The last of the commercial paper purchases matured on April 26, 2010, as the loans were repaid with interest and fees. The CBFF LLC was dismantled four days later.

Provisions in the Dodd-Frank financial reform bill, passed earlier this year, required the public disclosure of the CPFF loans by December 1, 2010. The full purchase list (available in a spreadsheet at the Federal Reserve website: www.federalreserve.gov/newsevents/reform_cpff.htm) reveals financial giants like Citigroup, Morgan Stanley and AIG snatched up the majority of the fed money. Harley-Davidson, however, was one of a number of major American brands that also benefited from the CPFF funding lifeline, along with Caterpillar, McDonalds, GE and Verizon.

The total amount of Harley-Davidson commercial paper purchased by the government totaled $2,320,600,000. The 33 total paper purchases followed two major waves, with daily purchases as the program began on October 27 through October 31 – the first purchase being the largest at $148.9 million. Harley then issued paper sporadically throughout November and December of 2008.

A second wave of paper was issued three months later as the first round reached the to maturity date, beginning January 26 2009. The paper amounts of the second wave correspond roughly with many of the original paper amounts. The last commercial paper issuance by H-D to the CPFF was February 11, 2009.

UPDATE: Harley-Davidson representative have clarified that the “highest level of commercial paper outstanding to the Fed at any one time under this program was $1.35B.”

As its final government paper was purchased, Harley-Davidson received an injection of long-term funding from a notable private investment source, Warren Buffet. The billionaire delivered $300 million to H-D on February 4, 2009. The bond purchase requires Harley to pay 15% annual interest, with the bonds maturing in 2014.

The credit crisis was a primary source of Harley-Davidson’s financial woes, as the company’s Financial Services arm hemorrhaged losses. The HDFS lost $24.9 million in Q4 of 2008, and $118 million total in 2009. HDFS is critical to Harley’s success as it finances a majority of the company’s consumer purchases.

Trade and Settlement Date Maturity Date          Commercial Paper Purchased (In Millions) 
10/27/2008  1/26/2009  148.9 
10/28/2008 1/26/2009  49.6  
10/29/2008  1/27/2009  49.6  
10/30/2008   1/28/2009   99.3  
10/31/2008   1/29/2009   49.7  
11/3/2008   1/30/2009   99.4  
11/4/2008   2/2/2009   99.4  
11/5/2008 2/3/2009 99.4
11/6/2008 2/4/2009 99.4
11/7/2008 2/5/2009 49.7
11/10/2008 2/9/2009 99.4
11/12/2008 2/10/2009 99.4
11/13/2008 2/11/2009 99.4
11/14/2008 2/12/2009 24.8 
11/17/2008 2/17/2009 24.8 
11/21/2008 2/19/2009 39.8
12/1/2008 2/27/2009 49.7 
12/19/2008 3/19/2009 19.9 
12/22/2008 3/23/2009 19.9
12/23/2008 3/23/2009 19.9
1/26/2009 4/27/2009 139.2
1/27/2009 4/27/2009 34.8 
1/28/2009 4/28/2009 24.9
1/29/2009 4/29/2009 24.9 
1/30/2009 4/30/2009 99.4
2/2/2009 5/4/2009 99.4
2/3/2009 5/4/2009 99.4
2/4/2009 5/5/2009 99.4
2/5/2009 5/6/2009 49.7 
2/6/2009 5/7/2009 9.9
2/9/2009 5/11/2009 99.4
2/10/2009 5/11/2009 99.4
2/11/2009 5/12/2009 99.4