Harley-Davidson inks loan deal with KKR and Pimco
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.
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 Harley-Davidson's financing business.
Harley-Davidson Financial Services, as the arm is officially known, has regularly securitised 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 with KKR and Pimco 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 said on Wednesday 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 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.
It is part of a broader turnaround plan for the struggling maker of Road King touring bikes, which reported operating income in the second quarter fell 53% year over year to US$112m amid soft demand for its products.
The company estimated new and increased tariffs were a US$17m drag on its first-half results and warned the impact will increase in the second half.
CEO Jochen Zeitz said the HDFS deal 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, Harley also agreed to sell more than 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.
KKR and Pimco have paired up before. In October 2023, they joined a consortium that bought home improvement loans firm Greensky from Goldman Sachs.