Harley-Davidson Pays Back $297 Million in Loans

12/13/2010 @ 9:07 am, by Jensen Beeler10 COMMENTS

Harley-Davidson filed papers today with the SEC disclosing that the company has bought back $297 million in papers (essentially paying off a loan) from Davis Selected Advisers, L.P to the tune of $380.8 million. Taking the loan amount at 15% interest, Harley-Davidson borrowed roughly $600 million from Davis Select and Warren Buffett ($300 million each, despite what other blogs seem to think) back in February of 2009. This announcement marks the first step Harley-Davidson has taken in repaying that debt, and with the added $100 million in interest payments, it’s easy to understand why.

With the cash infusion by Davis Select and Berkshire Hathaway seen at the time as a vote of confidence in the Milwaukee brand, the cost of taking the loan levied a heavy burden on Harley-Davidson’s balance sheet. In just nearly two years’ time, this loan has accrued just under $200 million in interest; and rightfully so, Harley is seeing the wisdom in paying off that amount in partial today.

At the time, the $600 million amount coincided with the yearly burn rate (how much money the company uses in a year) of Harley-Davidson. With already roughly $600 million in cash reserves, Harley’s loan from Davis Select and Berkshire Hathaway represented the company’s new-found financial ability to do two years worth of operations without making any money. With that possibility nearly coming true, Harley-Davidson’s repayment of this loan could be a sign that the company feels confident in its ability to stay afloat in the coming markets.

Despite today’s transaction, Davis Select remains a shareholder in Harley-Davidson, owning over 10% of the company’s stock. Meanwhile Harley-Davidson still owes Warren Buffett’s Berkshire Hathaway its $300 million plus interest, which in February 2011 will close in on the $400 million mark in total debt. Harley-Davidson stock shot up about a dollar per share after the release of the announcement, mimicking the market openings

Full Disclosure: The author of this article has a financial interest in the Berkshire Hathaway company.

Source: Harley-Davidson

  • Brij

    well good for them!

  • irksome

    And in that two years they have: Sold MV back to it’s original owner for one dollar; screwed Erik Buell; blackmailed the State of Wisconsin for $25 million; begun the process of doing the same to Kansas City; screwed their union (read: customer base) members and blackmailed them into allowing “casual workers” (their term) at $17 an hr with no benefits and… wait for it… introduced zero new products or technologies.

    Wait, my bad. There’s several new bandanas available. “Arrrhh.” I will not mourn the demise of HD.

  • Scooter

    What about the 3.2 billion HD got from Obama? I agree with irksome. Harley seems to spend a lot of money and then still sells the same old outdated motorcycles. I guess they are using the money on there new 2011 line of belt buckles, wall clocks and do rags. I wonder how much HD really owes. HD sold borrow some more money and use it to design a real motorcycle instead of the bar barges they sell now.

  • irksome

    Reply to Scooter: See that picture at the top of the page? THAT’S HD’s new model.

  • Richard Gozinya

    To be fair, they do offer the Night Rod Special in dayglo yellow now.

  • Shrike

    They are paying off these high interest loans using money secretly given to them by our Federal Reserve. That money was literally stolen from the value of every dollar in existence in every bank account and in every wallet. Hopefully, now that Ron Paul has some oversight over the FED, this kind of bullshit will stop happening. Harley Davidson needs to die already. This is the second time the tax payers and the government have bailed them out. The last time the government even levied a protectionist tariff on other “Heavy” bikes so that importers could not compete against Harley on a level playing field. Here is my prediction for Harley’s death:

    Since the economy is in disarray thousands of bankers, lawyers and dentists must liquidate some assets and that two wheeled tractor in the garage will be the first to go. This will fill up the showrooms and Ebay with used Harleys for sale. Since Harley has done no innovation in 40 years, the used bikes are the same bike as the new bikes. Nobody will buy a new bike.

    The End.

  • Couple things:

    1) These loans were private loans from private lenders.

    2) Harley was loaned $2.3 billion, not $3.2 billion, not that it really matters. This was a short-term loan designed to keep the short-term credit markets flowing. Not only have these loans already been paid off with interest, you’d have to chastise just about every major company in the United States, along with Harley-Davidson, for taking these loans.

    3) Irksome, Harley-Davidson ultimately didn’t take the $25 million from Wisconsin.

    I think Harley-Davidson is a broken company as much as the next guy, but you’re levying unfair criticisms at the brand with these remarks.

  • buellracerx

    agreed, Jensen; though they do have issues, it’s not fair to blow things out of proportion (you don’t even need to, it’s bad enough as it is).

    & irksome, the only reason it appears they screwed over their union is because they’d been breastfeeding them for so long. I worked there, saw what was going on. It was unbelievable…time for change

  • Scooter

    Harley Davidson counts a bike as sold when it leaves the factory. They are the only manufacture to do this and it gives a false impression to the public that there bikes are selling like hell. Really half of there 2010 production is sitting in a warehouse or on a showroom floor. Harley dumped Buell and the tax payers will pay for that huge mistake. The typical Harley buyer is heading for the nursing home or the grave yard. 90% of the young buyers will not have anything to do with a Harley. They are overpriced, over weight and 1960’s tech and young buyers do not want to have to dress up like a pirate to ride one or hang with the other Harley pirates. Every bar in my town has a Harley beached in front of it. Harley lost millions with there HD financial services. They were giving loans to anyone who could prove they were alive and that is the reason for the 600 million loan. It was to bail out HD financial services. I wonder how Harley dealers will do when the playing field is level and there buyers have to get a real loan like everyone else – not a HD financial services loan which are history now.

  • LutherG

    The problem with Harley is they are a lifestyle accessory. I can’t tell you how many guys I know who have one parked in the garage. They get out for a spin once or twice a summer, and that’s it. People need money now, and for the non-rider, the Harley goes first. With the market flooded with used bikes, how will Harley sell new ones?