Fitch Expects to Rate Harley-Davidson Financial's Unsecured Notes 'A'

CHICAGO--()--Fitch expects to rate Harley-Davidson Financial Services, Inc.'s (HDFS) proposed $400 million, five-year medium-term note issuance 'A'. HDFS is the captive finance subsidiary of Harley-Davidson, Inc. (HOG), a manufacturer of motorcycles.

KEY RATING DRIVERS - IDR and SENIOR DEBT

HDFS' ratings are linked to those of its parent, as Fitch believes the captive is a core subsidiary of HOG and there is an implicit level of support between the two entities. This is reflected by its close operating relationship with HOG, which is also evidenced by a support agreement under which HOG must maintain HDFS' fixed-charge coverage at 1.25x and a minimum net worth of $40 million. HOG and HDFS both have a Fitch long-term Issuer Default Rating (IDR) of 'A' with a Stable Rating Outlook.

Net proceeds from the issuance are expected to be used for general corporate purposes. Leverage, defined as total debt divided by tangible equity, which excludes deferred tax assets from stockholders' equity, was 6.8x at June 30, 2014. On a pro forma basis, leverage is expected to increase modestly to 7.3x, which remains consistent with similarly rated peers.

The notes are expected to rank equally in right of payment with all existing and future unsecured and unsubordinated debt from time to time outstanding.

The ratings of the proposed note issuance are equalized with the IDR to reflect the level of unsecured debt in HDFS' funding profile and the availability of unencumbered assets, both of which enhance the company's financial flexibility in a stressed scenario. As of June 30, 2014, unsecured debt represented approximately 68% of total debt, which is viewed favorably by Fitch.

RATING SENSITIVITIES - IDR and SENIOR DEBT

The IDR and Rating Outlook are linked to HOG. However, negative rating action could be driven by a change in the perceived relationship between HDFS and its parent. Additionally, a change in profitability leading to operating losses, meaningful deterioration in asset quality, material increase in leverage, difficulty accessing long-term funding, and/or a significant reliance on secured debt or other short-term funding sources could also yield negative rating action.

The ratings of the senior notes are sensitive to changes in HDFS' IDR, as well as the level of unencumbered balance sheet assets in a stress scenario, relative to outstanding debt.

Fitch assigns the following expected rating:

Harley-Davidson Financial Services, Inc.:

--Senior unsecured notes 'A(EXP)'.

Existing ratings on HDFS are as follows:

--Long-term IDR 'A';

--Short-term IDR 'F1';

--Senior unsecured 'A';

--Commercial paper 'F1'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 2014);

--'Finance and Leasing Companies Criteria' (Dec. 2012);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 2012).

Applicable Criteria and Related Research:

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=869994

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Contacts

Fitch Ratings
Johann Juan, +1 312-368-3339
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Richard Wilusz, +1 312-368-5459
Associate Director
or
Committee Chairperson
Tara Kriss, +1 212-908-0369
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Johann Juan, +1 312-368-3339
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Richard Wilusz, +1 312-368-5459
Associate Director
or
Committee Chairperson
Tara Kriss, +1 212-908-0369
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com