(The following statement was released by the rating agency)
Jan 30 - Fitch Ratings places Harley-Davidson Inc. (NYSE: HOG) and HOG's 100% owned subsidiary, Harley-Davidson Financial Services, Inc. (HDFS) on Rating Watch Negative as follows: Harley-Davidson Inc
--Issuer Default Rating (IDR) 'A'. Harley-Davidson Financial Services
--Short-term IDR 'F1';
--Senior unsecured 'A'. Harley-Davidson Funding Corporation
--Short-term IDR 'F1';
--Commercial paper 'F1';
--Senior unsecured 'A'.
Fitch's actions affect $3.2 billion of debt at HDFS and $182 million of debt at HOG. Due to the existence of a support agreement and demonstrated support by the parent, HDFS' ratings are linked to those of HOG.
The placement on Rating Watch Negative reflects Fitch concerns on the following items:
--Financing and liquidity plan for HDFS in 2009. Fitch's primary funding concerns relate to the company's financing alternatives over the near term. HDFS has two facilities that expire in the next six months. The first is a $500 million ABCP conduit that expires at the end of March. Fitch expects that HDFS will attempt to extend and increase this facility. HOG and HDFS also have a $950 million 364-day credit facility that expires in July. This facility and a $950 million three-year facility are primarily used to support HDFS' commercial paper program and to fund HDFS' lending activities and operations. Fitch is concerned that renewal of the 364-day facility in July 2009 will be challenging and could result in reduced commitments and increased pricing.
--HDFS' ability to continue to support parent company sales at the typical level of approximately 53%-55% of retail volumes. Fitch will also evaluate the likelihood HOG customers can obtain economical financing through other reliable sources.
--Outlook for 2009 sales and margins at HOG's manufacturing operations and higher cash outlays related to pension and restructuring charges. Also the weak economic environment, which could lead to further restructuring actions at HOG if volumes come under additional pressure.
--Outlook for HDFS credit quality through 2009. While Fitch acknowledges the company's fairly benign loss rates to date, Fitch assumes that HDFS' underlying collateral is more discretionary in nature and would rank well below other assets in terms of priority of payment.
--Recently announced management changes at both HOG and HDFS. HDFS is currently in compliance with all covenants which include: HDFS leverage covenant of 10:1 times (x) debt to equity and a minimum interest coverage ratio at the consolidated HOG level of 2.5:1.
The revolver does not contain a material adverse change clause. In addition, HOG must maintain HDFS' fixed-charge coverage at 1.25x and minimum net worth of $40 million.
Fitch expects to meet with HOG's management team and resolve the Rating Watch Negative in the near term.