Harley-Davidson Pays Back $297 Million in Loans

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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

Jensen Beeler

Despite his best efforts, Jensen is called one of the most influential bloggers in the motorcycle industry, and sometimes consults for motorcycle companies, whether they've solicited his expertise or not.