Warren Buffett injects $300m into Harley Davidson

Warren Buffett, the celebrated investor, is backing one of America’s most iconic companies, buying a $300m (£207m) debt tranche in motorbike manufacturer Harley-Davidson.

Warren Buffett injects $300m into Harley Davidson

Mr Buffett, better known for his investments in insurance and financials, bought the debt as part of a $600m issue by Harley to increase its cash position.

Harley has been struggling of late, following a 58pc decline in its fourth-quarter profit after losses at its financing arm, announcing the loss of 1,100 jobs last month and the need to consolidate a number of its plants.

The new cash will be used to bolster its finance arm, with RBC Capital Markets’ Ed Aaron noting: “Harley’s finance arm needs capital in a highly constrained credit environment.”

But that capital will come at a cost – with Mr Buffett receiving a 15pc annual dividend on his investment in Harley’s senior unsecured debt, which matures in 2014.

The dividend is approximately twice the average coupon paid on corporate debt in the US.

But it is not the first time Mr Bufffett has invested in the credit crisis in return for higher yields, taking a 10pc coupon from Goldman Sachs for his $5bn purchase of preferred shares in the investment bank last October, and receiving the same dividend level from his $3bn in General Electric.

Fund manager Davis Selected Advisers, which is Harley’s largest shareholder, bought the remaining $300m debt tranche on the same terms.

Shares in Harley traded up 16pc, in spite of ratings agency Moody’s Investor Services cutting its credit rating on the bike manufacturer’s funding arm to A2, warning of a further downgrade due to the “current cyclical downturn in the US economy.”

The company has been suffering from a drop in demand for its products, as motorcyclists in both the US and around the world reduce their spending as a direct consequence of the growing recession.

In spite of that, Harley recently celebrated the completion of its one millionth bike, a red 883 Sportster, which rolled off the production line at its Kansas City plant.

By James Quinn, Wall Street Correspondent
Last Updated: 9:45AM GMT 04 Feb 2009

Source: The Telegraph

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.