Fitch Ratings has upgraded the Issuer Default Ratings (IDRs) of In addition, Fitch has withdrawn HOG's senior unsecured rating, now that all of the motor company's senior unsecured debt has been repaid. Fitch does not expect HOG to issue debt at the parent company level in the intermediate term. HDFS' senior unsecured rating has been upgraded to 'A' and its short term rating has been upgraded to 'F1'. The Rating Outlook for HOG and HDFS is Stable. A complete list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The upgrade of the IDRs of HOG and HDFS reflects the motorcycle manufacturer's strengthened credit profile now that its restructuring is complete. Also, on
HOG commands more than 50 percent of the U.S. heavyweight motorcycle market, and sales outside the U.S. continue to grow, particularly in emerging markets such as
HDFS' ratings reflect its close operating relationship with HOG, which is governed by a support agreement under which HOG must maintain HDFS' fixed-charge coverage at 1.25 times (x) and minimum net worth of
The primary risk to HOG's ratings is the potential for an economic slowdown to result in lower motorcycle demand and reverse the positive growth trends that have taken hold over the past several years. This could weaken HOG's profitability and pressure the company's liquidity. A downturn that is accompanied by tightened credit markets would exacerbate the pressure by potentially limiting HDFS' access to stable sources of capital and forcing HOG to provide financial support to the subsidiary. Despite these risks, HOG is now in a significantly better position to withstand a future downturn than is was prior to the last recession, with a more flexible cost structure and a commitment to maintaining liquidity (including both cash and revolver availability) sufficient to meet its consolidated cash needs over a rolling 12-month period. The motor company's debt- free balance sheet and well-funded pension plans also enhance its financial flexibility.
The operational restructuring that HOG began in 2009 is complete. In
For the 2014 model year, HOG has introduced its heavily updated line of Touring motorcycles known as 'Project Rushmore'. These are the first motorcycles designed under the accelerated product development process that HOG implemented several years ago. The Rushmore motorcycles feature a number of new design elements, upgraded technology and updated motors. HOG has raised prices on the Rushmore bikes, but the company has noted that their higher level of equipment actually results in slightly lower margins. In addition to the Rushmore motorcycles, in the spring of 2014, HOG will introduce the entirely new Street line of motorcycles. The Street motorcycles are lighter weight and will have a lower base price than HOG's existing motorcycles, and they are powered by new, smaller engines. The Street motorcycles have been designed with non-U.S. markets in mind, but they will be sold as entry-level motorcycles in the U.S. as well. Although the lower price of the Street motorcycles risks some cannibalization with lower-end Sportsters, Fitch views the introduction of both the Rushmore and Street motorcycles positively, as their updated technology and design will help to further diversify HOG's customer base without diluting its strong brand image.
The motor company's credit profile remains strong and, following the debt repayment, is characterized by zero debt, high margins and robust liquidity. Fitch-calculated EBITDA for the motor company in the 12 months ended
The motor company's free cash flow remained robust in the 12 months ended
At year-end 2012 (the most recent detailed information available), HOG's pension plans were 82 percent funded on a projected benefit obligation (PBO) basis, with a PBO of
HDFS' operating performance has been stable. In 2013, its operating income of
As of year-end
Leverage, as measured by total debt divided by tangible equity, was 6.0x at
Positive: Fitch does not anticipate upgrading the ratings of HOG or HDFS in the intermediate term.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--A severe downturn in global heavyweight motorcycle demand;
--A change in financial policy that leads to the motor company once again carrying debt, particularly to fund shareholder activities;
--A shift in business strategy away from a focus on the namesake brand;
--Difficulty in HDFS accessing long-term funding for new originations;
--A significant increase in HDFS' reliance on secured debt or commercial paper;
--A meaningful deterioration in HDFS' asset quality;
--A change in the perceived core relationship between HOG and HDFS.
Fitch has taken the following rating actions on HOG and HDFS:
--Long-term IDR upgraded to 'A' from 'A-';
--Senior unsecured rating withdrawn.
--Long-term IDR upgraded to 'A' from 'A-';
--Senior unsecured rating upgraded to 'A' from 'A-';
--Short-term IDR upgraded to 'F1' from 'F2';
--Commercial paper rating upgraded to 'F1' from 'F2'.
--Senior unsecured rating upgraded to 'A' from 'A-'.
The Rating Outlook is Stable.
Additional information is available at 'fitchratings.com'.
--Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage (
--Global Financial Institutions Rating Criteria (Jan. 31,);
--Finance and Leasing Companies Criteria (
--Rating FI Subsidiaries and Holding Companies (
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
Rating FI Subsidiaries and Holding Companies
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Fitch Ratings has upgraded the Issuer Default Ratings (IDRs) of
In addition, Fitch has withdrawn HOG's senior unsecured rating, now that all of the motor company's senior unsecured debt has been repaid. Fitch does not expect HOG to issue debt at the parent company level in the intermediate term. HDFS' senior unsecured rating has been upgraded to 'A' and its short term rating has been upgraded to 'F1'. The Rating Outlook for HOG and HDFS is Stable. A complete list of rating actions follows at the end of this release.