Harley-Davidson announced on July 30 that the company’s financial arm, Harley-Davidson Financial Services, has entered into a strategic partnership with KKR, a leading global investment firm, and PIMCO, a global leader in active fixed income with expertise across public and private markets.
Harley-Davidson says the partnership will transform HDFS into a capital-light financing business through the sale of existing and future retail loans while maintaining its strategic value to H-D, its dealers, customers and investors. The sale of more than $5 billion of existing retail loan receivables is valued at a premium to par.
Under the terms of the agreement, HDFS will also sell 4.9% common equity interests to investment vehicles managed by KKR and PIMCO at an implied valuation of 1.75 times the price to post-transaction book value. Harley-Davidson will retain control of HDFS, which will continue to originate and service existing and new consumer loans. The company says it expects HDFS operating income to grow back toward pre-transaction levels over time.
H-D says it plans to use the approximately $1.25 billion of cash unlocked through the transaction to reinvest in order to support demand-driven investments, reduce $450 million of debt and return approximately $500 million to shareholders.
KKR’s investment comes from KKR-managed credit funds and accounts via the firm’s Asset-Based Finance strategy. PIMCO’s investment comes from funds and accounts focused on PIMCO’s private strategies.
“From the outset of this process, we set out to demonstrate the class-leading returns of HDFS, create a long-term stable funding mechanism, and maintain the strong financial profile of HDFS, all without impacting service to dealers and customers,” says Harley-Davidson Chairman, President, and CEO Jochen Zeitz. ” “Importantly, the approximately $1.25 billion of cash this transaction unlocks allows us to strengthen Harley-Davidson by supporting additional investment into the business, further reducing debt, and accelerating cash returns to shareholders.”
Strategic rationale
Asset-light growth: HDFS expects to grow its balance sheet and operating income over time following a benefit related to the sale of existing retail loan receivables and release of loan loss reserve in 2025 and subsequent rebasing to reduced operating income reflecting the new asset-light model in 2026. Under the terms of the five-year Forward Flow Agreement, HDFS will retain approximately one-third of annual retail loan originations on its balance sheet and generate new revenue streams through a fixed servicing fee on loans purchased by KKR and PIMCO.
Strengthened offering: H-D retains full control of HDFS while creating a long-term, stable funding mechanism through the support of KKR and PIMCO. Dealers and customers will continue to receive the same service without any impact to wholesale loans, consumer credit cards or other offerings.
Enhanced capital allocation flexibility: Transaction unlocks $1.25 billion of cash for H-D after the repayment of HDFS debt associated with retail loan receivables. The planned reduction of an additional $450 million of H-D debt is expected to strengthen the company’s balance sheet and create strategic optionality to help navigate the current environment, return capital to shareholders and support future demand driving investments.
Long-term value creation: Transaction values the post-transaction HDFS business at a premium multiple and is expected to reduce H-D’s overall leverage and perceived risk, which is expected to lower the company’s cost of capital on a go-forward basis.