S&P Rates Harley-Davidson Funding Corp.'s Commercial Paper 'A-1'
18 November 1997
S&P Rates Harley-Davidson Funding Corp.'s Commercial Paper 'A-1'
NEW YORK, Nov. 18 -- Standard & Poor's today assigned its 'A-
1' rating to Harley-Davidson Funding Corp.'s 4(2) commercial paper program,
guaranteed jointly and severally by Eaglemark Inc. and Eaglemark Financial
Services Inc. Harley-Davidson Inc.'s single-'A' corporate credit rating is
affirmed and its outlook remains stable.
Harley-Davidson Funding provides wholesale and retail financing for
motorcyles of its ultimate parent, Harley-Davidson, and similar programs for
boat and recreational vehicle dealers and consumers. The new rating is based
on the consolidated Harley-Davidson entity and reflect the firm's good
business position, strong profitability, and low financial risk. The rating
also considers the guarantees provided to the issuer by its direct parent,
Eaglemark, and financial parent, Eaglemark Financial Services, and the support
agreement between Harley-Davidson and its 97.8%-owned captive finance
subsidiary, Eaglemark Financial Services.
The rating reflects Harley-Davidson's strong operating performance from
its core motorcycle business, expectations of continued improvement in
operational and geographic diversity, and the maintenance of a conservative
capital structure as motorcycle production capacity is gradually expanded. The
firm holds a dominant competitive position in the custom and touring segments
of the domestic heavyweight market. Operating performance has been steadily
improving, despite intensified competitive efforts from Japanese
manufacturers, due to steady increases in motorcycle production and enhanced
productivity. Demand has exceeded supply for many years, even as capacity
levels have been augmented. Additionally, modest geographic diversity is
provided by strong growth in export sales, which comprise about 28% of
shipments. Modest operational diversity is also supplied by the consistently
growing parts and accessories business, and high-margin licensing revenues.
Management's financial policies and capital structure are conservative, with
minimal debt used to support manufacturing operations and moderate surplus
cash balances maintained to maximize flexibility. Proceeds of about
$100 million from the 1996 sale of the underperforming nonmotorcycle,
transportation segment have been added to cash balances, which totaled
$105 million at Sept. 28, 1997. The firm has a sufficiently strong financial
profile to accommodate its ongoing expansion strategy. The company's goal is
to gradually increase production capacity at about an 8% average annual rate
to over 200,000 units by 2003 from a target of 131,000 in 1997. Expansionary
capital spending is expected to be funded with free cash flow. Harley-Davidson
plans to spend a total of about $370 million for its 1997-1998 capital
expenditures program. These funds, which substantially exceed depreciation and
amortization, are being used to complete construction of a second motorcycle
assembly plant that will begin operating in 1998, and continue adding to
production capacity.
Eaglemark Financial Services' conservative underwriting policies, a
fairly good retail credit profile, and high motorcycle resale values are
expected to result in continued low delinquencies, repossessions, and credit
losses. Additionally, nonmotorcycle financing, which has a higher risk of
credit losses, currently accounts for less than 15% of finance receivables,
and is not expected to meaningfully increase over the intermediate term.
OUTLOOK: STABLE
Harley-Davidson's profitability is expected to remain strong over the
near-to-intermediate term as motorcycle production remains capacity
constrained and worldwide demand is expected to remain robust. Longer-term,
the firm is expected to continue to maintain a conservative capital structure,
which should enable it to withstand fluctuations in demand, Standard & Poor's
said. -- CreditWire.
SOURCE Standard & Poor's CreditWire