Harley-Davidson restructures to preserve cash

Harley-Davidson Inc. motorcycles stand on display at the Tokyo Motorcycle Show in Tokyo.

COVID-19 has “dramatically changed” Harley-Davidson’s business and strategic plan, said Jochen Zeitz, acting president and CEO of the motorcycle manufacturer, during its first-quarter earnings call today. Harley-Davidson withdrew its 2020 guidance in late March.

Harley is in full cash-preservation mode. In addition to operational changes, such as reduced planned capital spending, a hiring freeze and salary cuts for executives — which will save approximately $250 million in cash for the year — the company further increased its cash holdings by $1.47 billion, for a total of $2.47 billion.

“We need to make significant changes to the company, to our priorities, to our operating model and to our strategy to drive more consistent performance as we emerge from this crisis,” Zetiz said.

In addition, in April, the company amended its $1.42 billion credit facility, extended its $200 million 364-day loan facility and is “in discussions with major U.S. banks to secure an additional $1.3 billion in liquidity.” None of its bank credit facilities have been drawn down.

As for the motorcycle manufacturer’s captive, Harley-Davidson Financial Services holds $1 billion in total available liquidity from its credit facilities and commercial paper program. HDFS also holds an additional $1.1 billion in cash and cash equivalents.

Moreover, the captive paid its parent company, Harley-Davidson Inc., $100 million in dividends. However, HDFS originations were down 10.8% year over year to $611.1 million, while the captive’s total portfolio remained flat at $7.6 billion.

The captive is also eyeing the asset-backed securitization market to bolster its liquidity, and anticipates accessing capital markets “in the near future” the company noted. The last ABS issuance from HDFS was a $525 million deal last January.

As for reserves, HDFS increased allowance for credit losses $100.6 million in response to the Jan. 1 adoption of CECL. Moreover, the captive added an additional $36 million in reserves for loan losses in response to the pandemic.

The motorcycle manufacturer’s sales were down 17.7% YoY as a result of the COVID-19 crisis. Harley-Davidson Inc.’s stock [NYSE: HOG] was up 15.68% trading at $21.91 per share as of 2:30 P.M. ET. The company’s market cap is $3.36 billion.

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