• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Announcement:

Moody's changes Harley-Davidson outlook to positive

Global Credit Research - 17 Sep 2012

Approximately $3 billion of debt affected

New York, September 17, 2012 -- Moody's Investors Service changed the rating outlook of the finance operations supported by Harley-Davidson, Inc. to positive from stable. Harley-Davidson Financial Services, Inc. (HDFS) and Harley-Davidson Funding Corp. (HDFC) provide retail and wholesale financing for Harley-Davidson's motorcycle operations. The Baa1 long-term-ratings of HDFS and HDFC, as well as the Prime-2 short-term rating of HDFC, are based on a support agreement from Harley-Davidson. These long-term and short-term rating are affirmed at the current levels.

RATINGS RATIONALE

The Baa1 ratings reflect Harley-Davidson's highly favorable competitive position in the North American heavyweight motorcycle market, the company's strong credit metrics, and the sound liquidity and portfolio quality of the finance operations. The Baa1 rating also recognizes the progress that the company has made in implementing its restructuring program and improving operating efficiencies.

For the last twelve months through June 2012, the company's EBITA margin was 15% and EBITA/interest was 10.8x.

The principal risk facing Harley-Davidson is the highly cyclical and discretionary nature of demand for heavyweight motorcycles, as evidenced by the 23% sales decline the company experienced during 2009. Harley-Davidson company has made notable progress in moderating its vulnerability to future downturns. We estimate that its global breakeven level for unit shipments has declined by approximately 16%, from 190,000 units during the 2007-2009 period to a current level of about 160,000 units. Nevertheless, Harley-Davidson is undertaking additional initiatives that are intended to further enhance its operational flexibility. It is currently implementing a broad-based enterprise resource planning (ERP) data management system, and it also expects to achieve a significantly higher level of labor flexibility at its York, Pennsylvania facility during early 2013. Achieving the anticipated level of success with these initiatives will be important given the potential for a slowdown the US economy and the continued economic and financial uncertainty Europe.

The positive outlook reflects our expectation that the restructuring initiatives already undertaken by Harley-Davidson, combined with the benefits contemplated in the continuing efforts to improve operating efficiencies, could materially reduce its vulnerability to cyclical downturns. Should Harley-Davidson remain on track in achieving the hope-for levels of improvement into early 2013, its long-term rating could be raised.

Harley-Davidson's liquidity position and its ability to cover debt maturities during the coming twelve months are sound. At June 2012 the company had a consolidated cash and marketable security position of $1.2 billion, and annual free cash flow that approximated $500 million. The company also has two committed credit facilities: a $675 million facility maturing in April 2015, and a $675 million facility maturing in April 2017. These liquidity sources total $3 billion and provide ample coverage of $1.8 billion in debt maturing during the next twelve months. All of this maturing debt represents obligations of the financial service operations and includes: $846 million in commercial paper, $400 million in current maturities of long-term debt, and $507 million in maturing securitizations.

There could be upward rating pressure if Harley-Davidson achieves the anticipated benefits of its efficiency-enhancing initiatives and thereby further reduces its vulnerability to cyclical downturns. Any upward movement in the rating would also require a commitment to a dividend and share repurchase strategy that preserves low levels of debt at the manufacturing company. It would also be necessary for the company to remain committed to a strong liquidity profile given the funding requirements of the financial service operations.

Harley-Davidson in strongly positioned within the Baa1 rating level and downward rating pressure is unlikely. Nevertheless, there could be pressure on the outlook under a number of circumstances that include: a material erosion in motorcycle demand; industrial EBITA/interest remaining below 5x; Harley-Davidson adopting an aggressive share repurchase program; an erosion in the asset quality of HDFS; or the company's failure to maintain a sound liquidity profile.

The principal methodology used in rating Harley-Davidson was the Global Automobile Manufacture Industry Methodology published in June 2011, The Rating Relationship Between Industrial Companies And Their Captive Finance Subsidiaries Industry Methodology published in May 2012, and Finance Company Global Rating Methodology published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

For Multiple Issuers/Lead Analysts/Local Market Analysts/PACRs/Complex Rating Actions use boilerplate texts noted in "Summary of all Disclosure Elements -- Single vs. Multiple Issuers"

Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Harley-Davidson outlook to positive
No Related Data.

 

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