KKR and Pimco have agreed to buy minority stakes in Harley-Davidson's financial services arm in a multi-part deal that will provide the iconic motorcycle maker with about US$1.25bn of cash and see it offload two-thirds of the retail loans it originates over the next five years.
Back in May, Harley-Davidson said it was in discussion with multiple interested parties as it evaluated an investment into its lending business.
KKR and Pimco will each take on a 4.9% equity interest in the Harley-Davidson's financing business.
Harley-Davidson Financial Services, as the arm is officially known, has regularly securitized the kinds of loans that KKR and Pimco agreed to buy and instead sold them to investors in the public market for asset-backed securities, as it did mostly recently in a US$500m offering on May 20.
The transaction, announced on Wednesday along with earnings, is the latest example of the growing power of private investors in the structured finance and broader credit markets.
KKR put the deal together via a division focused on asset-based finance, which separately on Wednesday announced that it raised US$6.5bn to invest in "privately originated and negotiated" deals backed by asset pools. Pimco, long known as a leading public fixed income investor, is using private-focused funds to back the deal.
Harley-Davidson said on Wednesday that it aims to use US$450m of the new cash to reduce corporate debt, about US$500m for a share buyback in the second half, and up to US$300m to invest for future growth. The transaction is part of a broader turnaround plan for the struggling maker of Road King touring bikes, which reported operating income fell by 53% year over year to US$112m in the second quarter amid soft demand for its products.
CEO Jochen Zeitz said in a statement that the agreement offers a "long-term stable funding mechanism" for the company's lending arm, helping to transform it into a "capital-light financing business".
Under the deal, the iconic motorcycle manufacturer also agreed to sell over US$5bn of existing motorcycle loans and residual interests in asset-backed deals at a premium to the two asset managers. HDFS will receive fixed fees for servicing loans sold.