Harley-Davidson Seeks Bank Bailout Funds
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RenoJohn
Well-known member
Fascinating. thanks for the info twistedcricket
Senior notes at 15% year -until 2014 .....HD not getting that money for free, that's for $hure. Good for Buffet. wonder if they'll give him a Harley. The guy needs a good road-trip me thinks, he works way too much.
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Ummm, not so much as an investment for Warren but more like loan sharking by the Value Vulture from Omaha. It's a loan, no warrants or equity. Did you see the terms of the deal? 15% interest on $300Million. 1330bp over the LIBOR. I will gladly lock up my life savings for the next 5 years for 15% per annum. Mr Buffet will just about double his "investment". The loan shark lives. Shows you how frozen the credit markets are. Nobody will loan money to HDFS® but they will loan to The Motor Company®...at LIBOR +1330!!! Imagine the loan terms Harley-Davidson® will be offering with this pool of cash. 20% anyone? I thought their customer base was wealthy doctors, lawyers, nuclear physicists and titans of business. Why would they need a loan? Don't the wealthy just pay cash?
:tease:
DeweyIsgod
Well-known member
That's some pretty steep financing from ol Warren. 15% preferred dividend means that Warren gets his investment +15% per year before the common shareholders get anything. I'm a bit surprised the common stock is up on that news...probably people just assuming anything Warren touches turns to gold.
SouthernCruizer
Is it Beer:30 yet?
My take on this latest development:
HD Finance will be booking millions per month on accrued interest on this deal. The ONLY way they can survive this kind of expense in this down economy is to either A) raise interest rates on each and every loan they make or B] pass the costs on to HD, which in turn will be passed on to their customers at purchase time.
Now, if we were dealing with a typical consumer, the outcome of this would be devastating, as the bulk of HD customers would simply refuse this increase and walk away from the dealership. HOWEVER, we are not dealing with a generally rational group (and Buffet knows this, thus the willingness to take such a risk at this time). Their are so many die hard HD fans out there that they will be willing to eat the extra costs to be part of the brotherhood.
I say Buffet made a smart, calculated move. Time will prove this or not.
Quote from a stock forum I frequent:
<<<HD isn't dead. They have massive amounts of brand equity. They're not dead especially when you consider how low tech their products have been, and how much they keep on selling.
They could do a reverse evolution of their lineup and gradually end up with a bicycle frame and a panhead motor and still sell to the die hards.
Harley rules. All you have to do is take a drive around rural California to see how many people there are solely dedicated to this brand>>>
I think the above is dead on!
HD Finance will be booking millions per month on accrued interest on this deal. The ONLY way they can survive this kind of expense in this down economy is to either A) raise interest rates on each and every loan they make or B] pass the costs on to HD, which in turn will be passed on to their customers at purchase time.
Now, if we were dealing with a typical consumer, the outcome of this would be devastating, as the bulk of HD customers would simply refuse this increase and walk away from the dealership. HOWEVER, we are not dealing with a generally rational group (and Buffet knows this, thus the willingness to take such a risk at this time). Their are so many die hard HD fans out there that they will be willing to eat the extra costs to be part of the brotherhood.
I say Buffet made a smart, calculated move. Time will prove this or not.
Quote from a stock forum I frequent:
<<<HD isn't dead. They have massive amounts of brand equity. They're not dead especially when you consider how low tech their products have been, and how much they keep on selling.
They could do a reverse evolution of their lineup and gradually end up with a bicycle frame and a panhead motor and still sell to the die hards.
Harley rules. All you have to do is take a drive around rural California to see how many people there are solely dedicated to this brand>>>
I think the above is dead on!
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RenoJohn
Well-known member
"unsecured" ...yet
"preferred."
Maybe one of you wise men can help me understand. this is unsecured ( a loan basicly ) yet this is "preffered" note -which in my simple mind means that buffett's dividend will get paid before others'.
But what others? What is the pecking order?
I guess my question comes down to:
+When Harley eventually becomes paralized with this HUGE debt load (on top of their other money issues), -what will 'give'? If they default on the dividend and eventually the principal to buffet, what does buffet end up with?? (i'm having a hard time believing just his **** in his hand)
And if they need to rob peter to pay paul (uhh, I mean Warren), who gets robbed or how is the cash generated. Junk bonds?, creation of **** stock? employees retirement accounts? What does this 'preferred' actually come before??
My prediction: in about 2.5years, this will get interesting. This is a huge debt load me thinks ...for a company that is likely just beginning to feel the pain of the correction we're going through.
And, me thinks Warren is not a dumbmmby.
"preferred."
Maybe one of you wise men can help me understand. this is unsecured ( a loan basicly ) yet this is "preffered" note -which in my simple mind means that buffett's dividend will get paid before others'.
But what others? What is the pecking order?
I guess my question comes down to:
+When Harley eventually becomes paralized with this HUGE debt load (on top of their other money issues), -what will 'give'? If they default on the dividend and eventually the principal to buffet, what does buffet end up with?? (i'm having a hard time believing just his **** in his hand)
And if they need to rob peter to pay paul (uhh, I mean Warren), who gets robbed or how is the cash generated. Junk bonds?, creation of **** stock? employees retirement accounts? What does this 'preferred' actually come before??
My prediction: in about 2.5years, this will get interesting. This is a huge debt load me thinks ...for a company that is likely just beginning to feel the pain of the correction we're going through.
And, me thinks Warren is not a dumbmmby.
There is a certain truth to the above. How many other brands do you see frequently being permanently tattooed on the owners' skin. If that doesn't show brand loyalty, I don't know what does...
wfooshee
O, Woe is me!!
I don't see how this can be anything but a deeper hole for H-D. They've already robbed Peter to pay Paul by doing this.
He did this with Goldman Sachs too, I think. Some formerly respectable brokerage... Shelled out a few billion for a guaranteed return.
Set aside rules of logic, he's been on record saying that this is the perfect time to buy. He's also quoted, repeatedly, that you buy when others are nervous and should be nervous when others are buying.
A few billion in assets means he's not stupid.
I wonder what HD will spin-off (Buell), close down or if they'll cut back on their line to make this up....I haven't heard that they have a glut of inventory sitting around and need to idle plants to reduce the bikes sitting around unsold. Who knows...but others are right; what other brand compels it's owner's pure fanaticism?
Set aside rules of logic, he's been on record saying that this is the perfect time to buy. He's also quoted, repeatedly, that you buy when others are nervous and should be nervous when others are buying.
A few billion in assets means he's not stupid.
I wonder what HD will spin-off (Buell), close down or if they'll cut back on their line to make this up....I haven't heard that they have a glut of inventory sitting around and need to idle plants to reduce the bikes sitting around unsold. Who knows...but others are right; what other brand compels it's owner's pure fanaticism?
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Maybe Harley can find another toy company to buy them out again (a' la AMF)? Or raise tariffs on imported bikes (again). These things that worked in the past, ya know...
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charismaticmegafauna
Well-known member
Here's some more information I found interesting:
I was at a motorhome/RV supply store the other day picking up some parts when the converstion turned to the state of that industry. The store owner was relating to me some of the Motorhome/RV companies that have gone out-of-business. When he got around to Holiday Rambler, I interjected: "They're owned by Harley Davidson." He said, "They used to be -- Harley bled them dry and sold the remains to... (I don't remember/didn't recognize the company)." He said, "What Harley did to Holiday Rambler is the same as ****."
Just another view of 'The Motor Company'... :blink:
dragonchef
Well-known member
The value of HD is the brand name. A basic no-frills sportster goes for almost $40K new in Korea and Japan....and there are scads of 40 and 50 somethings waiting in line.
Would not be suprised to see the brand eventually sold to a foriegn manufacturer. No different than perhaps Chrysler or GM, who will most likely be a Chinese company n the next 5 years or so (Jaguar and Range Rover are now Indian).
The only option for survival in this market is to lower the cost of output, meaning labor cost. Given the option of reduced salary or no job at all, workers for bankrupt companies will do what they need to do to keep a job. Globalization has come home to roost. It's only just beginning. How much will the US worker take? Remains to be seen.
I can remember a few years back thinking $25 for an awesome cigar was a good deal. Same smokes are about $8 now. It is all relative.
Would not be suprised to see the brand eventually sold to a foriegn manufacturer. No different than perhaps Chrysler or GM, who will most likely be a Chinese company n the next 5 years or so (Jaguar and Range Rover are now Indian).
The only option for survival in this market is to lower the cost of output, meaning labor cost. Given the option of reduced salary or no job at all, workers for bankrupt companies will do what they need to do to keep a job. Globalization has come home to roost. It's only just beginning. How much will the US worker take? Remains to be seen.
I can remember a few years back thinking $25 for an awesome cigar was a good deal. Same smokes are about $8 now. It is all relative.
jmdaniel
Has A Well Known Member
charismaticmegafauna
Well-known member
Eligible ABS securities under the TALF program must be AAA-rated. In Harley-Davidson’s® most recent securitization, 73% of the total securitized amount was AAA rated while roughly 25-30% of the loans on Harley-Davidson’s® balance sheet are subprime.
Earlier this week, Harley-Davidson® announced a $600 million senior note issuance at 15%, with proceeds going toward HDFS® lending activities to HOG© customers. This rate is above the average retail loan rate of ~12% that HDFS® charges its loan customers, making this type of financing unsustainable.
Harley-Davidson® has to live with this 15% loan for the next five years as it has very strong prepayment penalties. These notes can only be prepaid at certain points via their “optional redemption” clause. The clause stipulates Harley-Davidson® would pay the greater of: 1)100% of the principal being redeemed or 2) the Present Value of the remaining payments being redeemed from the redemption date to the maturity date discounted at Treasury rate plus an undisclosed spread. Prepayment of these notes carries a high cost, advantage Buffet and Davis.
As to the question of will Warren get paid...he will. They can cut or kill the dividend, shareholders are screwed. They can stop the buyback currently authorized by the Board, shareholders are screwed. They can complete a dilutive share offering, shareholders are screwed.
Earlier this week, Harley-Davidson® announced a $600 million senior note issuance at 15%, with proceeds going toward HDFS® lending activities to HOG© customers. This rate is above the average retail loan rate of ~12% that HDFS® charges its loan customers, making this type of financing unsustainable.
Harley-Davidson® has to live with this 15% loan for the next five years as it has very strong prepayment penalties. These notes can only be prepaid at certain points via their “optional redemption” clause. The clause stipulates Harley-Davidson® would pay the greater of: 1)100% of the principal being redeemed or 2) the Present Value of the remaining payments being redeemed from the redemption date to the maturity date discounted at Treasury rate plus an undisclosed spread. Prepayment of these notes carries a high cost, advantage Buffet and Davis.
As to the question of will Warren get paid...he will. They can cut or kill the dividend, shareholders are screwed. They can stop the buyback currently authorized by the Board, shareholders are screwed. They can complete a dilutive share offering, shareholders are screwed.
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SouthernCruizer
Is it Beer:30 yet?
A quick click to the HD Finance site will reveal that the loan calculator for that Dream® HD™ of yours is pre-set to calculate 9.9% APR, and *84* month term! (cept for Sporster line, only 72 months). AMAZING! Anyone see a bright future around the 4-5 year mark, when the bike is getting a little less shiny and the love affair is getting stale, and the HOG dude still has 2 or 3 years left to pay on it??
Sample loan deal: future HOG buys a Road King for the MSRP of $12595.00. He has saved his money by not buying any LOTTO tickets for a year or so, so he has $5,000.00 to put down on the dream purchase.(HD Finance only requires 10%). He decides not to buy any clothes (up to $1,000.00 financeable) or accessories(up to $2,000.00 financeable) at the time of purchase (yeah, RIGHT!)...he decides that until his country club membership is paid off, he might be a little tight on cash, so he opts for the 84 month bargain payment of $233.27/month. I assume that he LUVS his scooter, so he keeps it the entire 7 years. So, consulting my abacus, his cost after final payment is thus - 5,000.00 down, and 84 pmts @ $233.27 ($19594.68) = $24,594.68.
$24,594.68 for a $12,595,00 bike.
Realistically, he wont get anywhere NEAR that amount at re-sale time, so I stand by my assertion that buying a HD for an "investment" is pure folly. Also realistically, I know that generally speaking, this dude is gonna put at least another grand into the bike via chrome, will most likely do some performance upgrades (Squakin' Chicken© probably) to the tune of another grand or so, and spend at least that much on the required HD socks, underwear, belt, boots, jacket, tshirts, etc. to become a full fledged member of the brotherhood.
Back to HD Finance: they will need some serious LUCK in the near future to survive this economy and loan arrangement with Buffett.
*DISCLOSURE* I am a share holder of HD, so I am not wishing for them to fail. But I am realistic.
Sample loan deal: future HOG buys a Road King for the MSRP of $12595.00. He has saved his money by not buying any LOTTO tickets for a year or so, so he has $5,000.00 to put down on the dream purchase.(HD Finance only requires 10%). He decides not to buy any clothes (up to $1,000.00 financeable) or accessories(up to $2,000.00 financeable) at the time of purchase (yeah, RIGHT!)...he decides that until his country club membership is paid off, he might be a little tight on cash, so he opts for the 84 month bargain payment of $233.27/month. I assume that he LUVS his scooter, so he keeps it the entire 7 years. So, consulting my abacus, his cost after final payment is thus - 5,000.00 down, and 84 pmts @ $233.27 ($19594.68) = $24,594.68.
$24,594.68 for a $12,595,00 bike.
Realistically, he wont get anywhere NEAR that amount at re-sale time, so I stand by my assertion that buying a HD for an "investment" is pure folly. Also realistically, I know that generally speaking, this dude is gonna put at least another grand into the bike via chrome, will most likely do some performance upgrades (Squakin' Chicken© probably) to the tune of another grand or so, and spend at least that much on the required HD socks, underwear, belt, boots, jacket, tshirts, etc. to become a full fledged member of the brotherhood.
Back to HD Finance: they will need some serious LUCK in the near future to survive this economy and loan arrangement with Buffett.
*DISCLOSURE* I am a share holder of HD, so I am not wishing for them to fail. But I am realistic.
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ummm, something wrong with your numbers. Financing $7,595 for 7 years at 9.9% I get $125.69 P&I per month. If they financed the full $12595 with no downpayment for 7 years it would still only be $208.44 a month.
Still, anyone that finances any bike for 7 years deserves to get screwed.
Still, anyone that finances any bike for 7 years deserves to get screwed.
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SouthernCruizer
Is it Beer:30 yet?
*****************************************************
Yep, something is sure wrong with the numbers...the HD calculator is not working right..I should have verified the number with my own calculator. If a potential buyer trys it, guess that will scare them off for sure! LOL What a deal! Hope the bike works better then the calculator!
:blink: Flint
Well-known member
Perhaps we may want to remember that a falling tide lowers all boats? I recently went to a small Suzuki shop and bought a "brand new" 2007 V Strom 1000. I then found out that Suzy no longer uses HSBC for it's financing but an outfit called Sheffield from Carolina. The rate I was told when I left my house for the 150 miles drive was it would be 2.5% to finance the bike. I said Ok I'll do that to get good credit with Suzuki. I get there and find out that the V Storm and all the GSXR's are excluded from the super duper low rate financing and "my rate" would be 17.99%. I about had a kitten but, since I hadn't loaded up my checkbook I went ahead and did it and put down 1000 dollars and when the first payment came do the other day I just paid it off. So much for working on my credit rate with Suzuki. :angry2:
The thing is I don't think that any thing is exempt in these times when it comes to money? As I travel around America I may or may not see a Burgman, or a V Strom, or a Goldwing but in every town I go through I almost always see a Harley. That means there are literally millions of HD's and their riders out there helping defray the cost of insurance and tows and emergency responses, etc. Not only that but I have to wonder what the standard of living for a Harley employee is here in the USA to that of a Yamaha or a Suzuki or a Honda employee is in Japan? Honda mover their manufacturing operations for the Goldwing back to Hammamatsu and noew they are shipping them here. A Honda dealer that is a contributor to the Goldwing riders board just released information that GL prices are going up from 1 to 2 thousand dollars per bike on the new ones. That and they also are not being allowed to sell any of the small dirt bikes or ATV's in America right now because of there being lead used in the paint on them. They can't have them on the floor and no literature about them either right now. That is going to really hurt these Japanese bike shops that live off of selling dirt bikes to Dads and sons?
Flint
The thing is I don't think that any thing is exempt in these times when it comes to money? As I travel around America I may or may not see a Burgman, or a V Strom, or a Goldwing but in every town I go through I almost always see a Harley. That means there are literally millions of HD's and their riders out there helping defray the cost of insurance and tows and emergency responses, etc. Not only that but I have to wonder what the standard of living for a Harley employee is here in the USA to that of a Yamaha or a Suzuki or a Honda employee is in Japan? Honda mover their manufacturing operations for the Goldwing back to Hammamatsu and noew they are shipping them here. A Honda dealer that is a contributor to the Goldwing riders board just released information that GL prices are going up from 1 to 2 thousand dollars per bike on the new ones. That and they also are not being allowed to sell any of the small dirt bikes or ATV's in America right now because of there being lead used in the paint on them. They can't have them on the floor and no literature about them either right now. That is going to really hurt these Japanese bike shops that live off of selling dirt bikes to Dads and sons?
Flint
