H-D Gets Extension on $500 Million Loan Agreement

Harley-Davidson, Inc. on Wednesday amended a debt agreement, extending the term of a $500 million loan another 364 days to March 17, 2010.

The previous loan agreement would have expired March 31, 2009, at which time H-D would have been obligated to repay the outstanding advance in full. H-D received the loan Dec. 12 from a group of lenders that included JPMorgan Chase Bank, N.A.

According to a Form 8-K filed with the Securities and Exchange Commission, the new loan agreement also changes the previous interest rate.

The amended loan agreement is just one of multiple strategies H-D has for remaining solvent during the current economic crisis.

In late January, H-D unveiled a three-part strategy to attempt to address the current economic environment. That three-part strategy focuses on stimulating consumer demand by investing in the Harley-Davidson brand; securing additional funding for Harley-Davidson Financial Services (HDFS), which makes wholesale loans to dealers and retail loans to consumers; and optimizing the company's cost structure.

Funding HDFS
On Feb. 3, H-D priced an offering of $600 million of its senior unsecured notes as part of the company's plan to fund the ongoing motorcycle lending activities of HDFS. Davis Selected Advisers, L.P., a long-time investor in Harley-Davidson, Inc. and the largest holder of H-D stock, and Berkshire Hathaway, Inc. each committed to purchase equal portions of the aggregate principal amount of the notes. The notes will be due in 2014 and will bear interest at a rate of 15 percent per annum.

Optimizing The Cost Structure
H-D said adjustment of the company’s cost structure includes:
  • Lower motorcycle shipments in 2009
  • Consolidate its two engine and transmission plants in the Milwaukee area into its facility in Menomonee Falls, Wis.;
  • Consolidate paint and frame operations at its assembly facility in York, Pa.;
  • Close its distribution facility in Franklin, Wis., consolidating Parts and Accessories and General Merchandise distribution through a third party; and
  • Discontinue its domestic transportation fleet operation.

  • The planned volume reduction and restructuring actions are expected to result in the elimination of about 1,100 jobs over 2009 and 2010, including about 800 hourly production positions and about 300 non-production, primarily salaried positions. About 70 percent of the workforce reduction is expected in 2009.

    H-D expects the volume reduction and changes to operations to result in one-time charges of approximately $110 million to $140 million over 2009 and 2010, but offer annual savings of approximately $60 million to $70 million.

    - Submitted by Guido Ebert