Harley-Davidson to Sell Financial Arm for $5 Billion

Harley-Davidson is in advanced discussions to sell a portion of its financial subsidiary, Harley-Davidson Financial Services (HDFS), and its existing motorcycle loan portfolio to Pacific Investment Management Company and KKR & Co. The potential deal, which could be valued at 5 billion, is part of the company's strategic efforts to streamline its operations and focus on its core business.

The negotiations are focused on divesting a significant portion of the financial arm, which includes the motorcycle loan portfolio. This move is seen as a strategic decision to reduce the financial burden and concentrate on the core motorcycle manufacturing and sales business. HDFS has been a significant part of Harley-Davidson's operations, providing financing options to customers and managing the company's financial assets.

The potential sale to Pacific Investment Management Company and KKR & Co. is a testament to the attractiveness of Harley-Davidson's financial arm. Both companies are known for their expertise in managing large-scale financial portfolios and have a proven track record in the industry. The deal, if finalized, would provide Harley-Davidson with a substantial amount of capital, which could be used to invest in new technologies, expand its product line, or pay down debt.

The sale of the financial subsidiary is part of a broader strategy by Harley-Davidson to refocus on its core business. The company has been facing challenges in recent years, including declining sales and increased competition from other motorcycle manufacturers. By divesting its financial arm, Harley-Davidson aims to simplify its operations and focus on innovation and product development.

The potential deal is also a reflection of the current market conditions, where companies are looking to streamline their operations and focus on their core competencies. The motorcycle industry, in particular, has been undergoing significant changes, with new technologies and shifting consumer preferences driving the need for innovation and adaptation. Harley-Davidson's decision to sell its financial subsidiary is a strategic move to position itself for long-term success in a rapidly changing market.

HDFS was put up for sale earlier this year, with its business including providing inventory financing to Harley-Davidson's dealers and offering loans to consumers purchasing Harley-Davidson and LiveWire brand motorcycles. The 5 billion transaction price would cover the iconic motorcycle manufacturer's existing motorcycle loan portfolio, and Pacific Investment Management Company and KKR also plan to acquire future loans issued by the company.

The transaction could be announced within a few weeks, but negotiations are still ongoing, and the details and scale of the transaction may change. Representatives from Pacific Investment Management Company and KKR declined to comment, and Harley-Davidson did not respond to requests for comment.

This potential sale comes at a time when Harley-Davidson is grappling with sluggish sales growth and intense competition from rivals such as Honda and BMW. The motorcycle manufacturer is scheduled to release its financial report on July 30. The company's stock has declined by approximately 22% so far this year.

In May, the Chief Executive Officer stated that the HDFS transaction is progressing, with multiple institutions expressing interest. Earlier this year, the company announced that it had hired an executive search firm to find a successor for the CEO, who plans to retire.

Private credit firms are expanding their footprint in the 520 billion asset-backed market, which covers a range of assets from auto loans to mortgage loans and typically receives investment-grade ratings. Some private credit firms acquire both the equity of consumer loan issuers and the loans they issue.

For instance, the Carlyle Group has previously entered this sector by acquiring minority stakes in companies like Sungage Financial, which provides residential solar battery financing. These companies often repackage the acquired loans and issue securities of varying risk levels and sizes.