[NEW YORK] Harley-Davidson is in advanced talks to sell a stake in its financing unit as well as its existing motorcycle loan portfolio in a deal worth US$5 billion to Pacific Investment Management Company (Pimco) and KKR, according to sources with knowledge of the matter.
The firms’ private credit arms are in discussions to purchase an interest in the bike maker’s Harley-Davidson Financial Services, or HDFS, the sources said.
HDFS, which was put up for sale earlier this year, helps the company’s dealers finance their inventory and lends to consumers for the purchase of Harley-Davidson and LiveWire motorcycles.
The US$5 billion price tag would include the iconic bike maker’s existing book of motorcycle loans, the sources said, adding that Pimco and KKR are also seeking to purchase the debt the firm originates in the future.
A deal could be announced within weeks, they added. Conversations are ongoing and details and size of the deal may change.
Spokespeople for Pimco and KKR declined to comment, while a representative for Harley-Davidson did not respond to requests for comment.
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The potential sale comes as Harley-Davidson grapples with lacklustre sales growth and stiff competition from rivals, including Honda Motor and BMW. The motorcycle maker is set to report results on Jul 30. Its shares are down around 22 per cent year-to-date.
Harley Davidson’s chief executive officer Jochen Zeitz said in May that “the HDFS transaction is continuing to progress with multiple interested parties”.
The company said earlier this year that it has retained an executive search firm to find a replacement for Zeitz, who intends to retire.
Private credit firms have been growing their footprint in the US$5.2 trillion asset based market, which encompasses everything from auto loans to residential mortgages and can often receive investment-grade ratings. Some of them have been buying up stakes in the companies that originate those consumer loans while also purchasing the debt they originate.
For instance, Carlyle Group has done so in the past by acquiring minority stakes in firms such as Sungage Financial, which provides financing for residential solar cells. Often times, these firms may look to repackage those loans into securities of varying risk and size.
Harley-Davidson is no stranger to that asset-backed bond market, having previously repackaged its motorcycle loans into notes, according to data compiled by Bloomberg. BLOOMBERG
