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[napalm]

Understand that Warren Buffet invested $600,000,000.00 in Harley Davidson to bailout HD's Finacial Services at a pretty high interest rate.

napalm

[MobileAGBell]

From the 2/4/09 Wall Street Journal:

"Harley-Davidson Inc. issued $600 million in senior unsecured notes on Tuesday, getting more financing for its struggling lending arm from, among others, billionaire Warren Buffett.

Shares of the iconic motorcycle company jumped on Tuesday, rising 16% to $13.73 in New York Stock Exchange composite trading. The shares had lost nearly three-quarters of their value from their 52-week high in April. Davis Selected Advisers LP, the company's largest shareholder, and Mr. Buffett's Berkshire Hathaway Inc. each bought $300 million of the notes.

The notes will be due in 2014 and will carry a 15% interest rate per year. The company said the high interest rate was because of the difficult credit markets."

[JCZ]

Does he know something we don't?  I don't think I'll be using HD Financial to be financing a motorcycle any time soon (not that I ever have).  But I may go re-invest in HD stock now.

[FLSTFI Dave]

Sounds like Buffett is soaking HD on the interest rate......

I wonder how HD likes that.

HD finacial services has never even been close to the rates I can get from my bank or credit union....

[hogasm]

So in 2014 Buffett Motorcycle Company will be producing a water cooled touring bike

[Gone Fishin']

Understand that Warren Buffet invested $600,000,000.00 in Harley Davidson to bailout HD's Finacial Services at a pretty high interest rate.

napalm

He wrote the check for half of it. The other $300m came from existing shareholders Davis Advisers. I have posted some thoughts about why this is good for H-D, despite the 15% interest rate here:
http://www.cvoharley.com/smf/index.php?topic=33186.0 (reply #9)

Ride safely,
Louis

[Gecko]

If they have to pay 15% on the money, what kind of rate are they going to charge on loans?  Unless they plan to make it up elsewhere (and if so why not just use that money for loans?), one would think it would be higher than 15%.  Sounds like life-support, but Warren doesn't usually make too many bad moves.  Although he has umpteen billion and lives here in Omaha, which brings at least one aspect of his judgement into question.

[Gone Fishin']

If they have to pay 15% on the money, what kind of rate are they going to charge on loans?  Unless they plan to make it up elsewhere (and if so why not just use that money for loans?), one would think it would be higher than 15%.  Sounds like life-support, but Warren doesn't usually make too many bad moves.  Although he has umpteen billion and lives here in Omaha, which brings at least one aspect of his judgement into question.

I am copying my reply in the other thread for convenience here:

Well, the way it works is slightly more complicated. First of all H-D needs cash put into financial services, since no lending can take place without cash (situation prior to the $600m infusion). Then the interest rate will be calculated to drive customers into the dealers, let's say around eight to nine pct., depending on the qualification of the buyer. The difference to the 15% is "cost of doing business" or "marketing expense". The other option would be to reduce the bikes purchases prices or introduce cash-back rebates and such. Way more costly, and it will stick, which means these will be hard to discontinue in different times. The cash infusion into financial services is a good lifeline for now.

Ride safely,
Louis

[greglyon]

I am copying my reply in the other thread for convenience here:

Well, the way it works is slightly more complicated. First of all H-D needs cash put into financial services, since no lending can take place without cash (situation prior to the $600m infusion). Then the interest rate will be calculated to drive customers into the dealers, let's say around eight to nine pct., depending on the qualification of the buyer. The difference to the 15% is "cost of doing business" or "marketing expense". The other option would be to reduce the bikes purchases prices or introduce cash-back rebates and such. Way more costly, and it will stick, which means these will be hard to discontinue in different times. The cash infusion into financial services is a good lifeline for now.

Ride safely,
Louis

Well said. Sounds like you may make decisions like this for a living.

[MobileAGBell]

If they have to pay 15% on the money, what kind of rate are they going to charge on loans?  Unless they plan to make it up elsewhere (and if so why not just use that money for loans?), one would think it would be higher than 15%.  Sounds like life-support, but Warren doesn't usually make too many bad moves.  Although he has umpteen billion and lives here in Omaha, which brings at least one aspect of his judgement into question.

The WSJ article reported that H-D will pay 15% PER YEAR for the senior unsecured notes, not 15% overall. That is a very high interest rate on the total of $600M.

Senior notes are debt that takes priority over other unsecured debt owed by the issuer (H-D). This means that if the issuer goes bankrupt, senior debt must be repaid before other creditors receive any payment. Mr. Buffett's company invests to make money. And receiving 15% annually on $300M of senior unsecured notes will provide his company with a fairly secure and highly profitable return on their investment.

[tazmun]

 I think I recall that Mr Buffet invested very heavy into Ford, a year or less ago?

If memory serves, he LHA!

[veech]

I think I recall that Mr Buffet invested very heavy into Ford, a year or less ago?

If memory serves, he LHA!

I've been directly told by Ford financing that they own HD!  Apparently they must be the majority shareholder...I was unaware of this.

[ice6900]

Well said. Sounds like you may make decisions like this for a living.

Louis sure has a business head on his shoulders!

[mrmagloo]

I've been directly told by Ford financing that they own HD!  Apparently they must be the majority shareholder...I was unaware of this.

What??

[harley56]

I've been directly told by Ford financing that they own HD!  Apparently they must be the majority shareholder...I was unaware of this.

Somebody at Ford is a good storyteller.