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Warren Buffet Buys Chunk of Harley Debt

Wednesday, February 4, 2009
The design of the exterior of the Harley-Davidson Museum is very industrial.
Warren Buffet provided temporary relief to Harley-Davidson's financial woes on Tuesday, buying up $300 million of The Motor Company's debt.
Warren Buffet, the billionaire investor who leads Berkshire Hathaway Inc., has agreed to buy $300 million of debt from Harley-Davidson. The investment comes with a 15% interest rate on the senior unsecured notes and will come due in five years. Buffet is purchasing bonds only without any guarantee that he will convert the bonds into equity. Similar deals the investing magnate has entered in recently with General Electric and Goldman Sachs came with the warranty that Buffet would purchase some of the companies’ stocks. Another $300 million in debt will be bought out by Davis Selected Advisers LP, the largest holder of Harley-Davidson’s stock.

The Motor Company said that it is offering the $600 million in bonds as part of its plan “to fund the ongoing motorcycle lending activities of its wholly-owned finance company, Harley-Davidson Financial Services.”

Harley’s stock, which has been slumping lately, showed immediate gains, rising $1.87 per share yesterday (a 16% increase), closing at $13.73 on the New York Stock Exchange. Composite trading reached $14.55 earlier in the day, the biggest gain for the stock since November 2008. The motorcycle maker still has lost about two-thirds of its market value in the past year, though.

This comes on the heels of Harley-Davidson’s 2008 fourth quarter reports which showed a 58% drop in earnings and the announcement of 1100 layoffs over the next two years.

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Comments
ducatidon -Harley help  February 5, 2009 11:11 AM
You're right about Harley needing to do something with their air-cooled motor. I've got a Yamaha Stratoliner and its motor doesn't put out as much heat while being larger and more powerful.
cdk -Harley help  February 5, 2009 07:56 AM
I think HD will make it either way, due to their strong brand loyalty. They should however look at lower pricing as I don't think people will keep paying so much for so little performance. Victory has a motor that is more powerful is more maintenance free and less money. If HD chose to drop $3000 off retail for all big bikes they could clear out all old inventory now. Hopefully they will have a newer motor for 2010, not water cooled but cooler running with another 10hp to compete.