Noting that “This transaction delivers benefits to all of Harley-Davidson’s stakeholders and marks the beginning of an exciting new chapter for HDFS,” outgoing Harley-Davidson Chairman, President and CEO Jochen Zeitz announced HDFS has entered into a long-term strategic partnership with a pair of global investment firms KKR and PIMCO to transform HDFS into a “capital-light financing business through the sale of existing and future retail loans while maintaining its strategic value to Harley-Davidson, its dealers, customers and investors.” The sale of more than $5 billion of existing retail loan receivables is valued at a premium to par.
Under the terms of the agreement, HDFS will also sell 4.9% common equity interests to investment vehicles managed by KKR and PIMCO at an implied valuation of ~1.75x price to post-transaction book value. Harley-Davidson will retain control of HDFS, which will continue to originate and service existing and new consumer loans. The Company expects HDFS operating income to grow back toward pre-transaction levels over time. The Motor Company plans to use the approximately $1.25 billion of cash unlocked through the transaction to reinvest to support demand-driven investments, reduce $450 million of HDI debt and return approximately $500 million to shareholders.
“From the outset of this process, we set out to demonstrate the class-leading returns of HDFS, create a long-term stable funding mechanism, and maintain the strong financial profile of HDFS, all without impacting service to dealers and customers,” claimed Zeitz. “Our strategic partnership with KKR and PIMCO achieves each of these core objectives, valuing the HDFS business at a premium multiple and transforming it into a more capital-efficient business with an expected significantly higher return on equity. Importantly, the approximately $1.25 billion of cash this transaction unlocks allows us to strengthen Harley-Davidson by supporting additional investment into the business, further reducing debt, and accelerating cash returns to shareholders.”
Zeitz concludes, “For our customers and dealers, HDFS will continue to originate and service new and existing loans and provide dealers with service, benefits and flexibility commensurate with what HDFS currently provides, while we also invest in the future of Harley-Davidson for years to come. We are pleased we were able to deliver such a successful strategic partnership for all of our stakeholders.”
The current issue takes a deeper dive into the murky HDFS waters:
