March 7, 2017 / 7:53 PM / 5 months ago

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

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(The following statement was released by the rating agency) CHICAGO, March 07 (Fitch) Fitch Ratings expects to assign an 'A' rating to Harley-Davidson Financial Services, Inc.'s (HDFS) proposed issuance of up to $500 million in aggregate of fixed- and floating-rate senior unsecured medium term notes (MTN). The interest rates will be determined at the time of issuance. HDFS is the captive finance subsidiary of Harley-Davidson, Inc. (HOG; 'A'/Outlook Stable), a manufacturer of motorcycles. KEY RATING DRIVERS IDR AND SENIOR DEBT The expected rating reflects that the debt is expected to rank pari passu with all other senior unsecured notes issued by HDFS. The equalization of the expected rating with HDFS' Long-Term Issuer Default Rating (IDR) reflects the unsecured funding profile and unencumbered asset coverage available to senior noteholders. Fitch does not expect there to be a material impact to HDFS's leverage resulting from the issuance, as proceeds will be used for general corporate purposes. Leverage, defined as total debt divided by tangible equity, was 5.88x in 2016 compared to 5.89x in 2015, which remains within the historical range of 5.0x and 7.0x., Fitch notes that HDFS's leverage is moderately lower than captive finance company peers but higher than many stand-alone finance companies. HDFS's ratings reflect its close operating relationship and support agreement with HOG, under which the parent must maintain HDFS's fixed-charge coverage at 1.25x and its minimum net worth at $40 million. The ratings of HDFS and HOG are linked, as Fitch believes that the finance company is a core subsidiary of the parent as demonstrated by the explicit and implicit level of support between the two entities. RATING SENSITIVITIES IDR AND SENIOR DEBT HDFS's ratings and Rating Outlook are linked to those of its parent. However, negative rating action could also be driven by a change in the perceived relationship between HOG and HDFS. Additionally, a change in profitability leading to operating losses, meaningful deterioration in asset quality, material change in leverage, difficulty in accessing long-term funding for new originations and/or a significant increase in reliance on secured debt or commercial paper could also yield negative rating action. Positive rating momentum for HDFS would be limited by Fitch's view of HOG's credit profile. Fitch cannot envision a scenario where the captive would be rated higher than its parent. Fitch has assigned the following expected rating: Harley-Davidson Financial Services, Inc. --Senior unsecured debt 'A(EXP)'. Fitch currently rates HDFS and its subsidiary as follows: Harley-Davidson Financial Services, Inc. --Long-Term IDR at 'A'; --Senior unsecured debt at 'A'; --Short-Term IDR at 'F1'; --Commercial paper at 'F1'. Harley-Davidson Funding Corp. --Senior unsecured debt at 'A'. The Rating Outlook is Stable. Contact: Primary Analyst Johann Juan Director +1-312-368-3339 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst Jared Kirsch, CFA Associate Director +1-212-908-0332 Committee Chairperson Joo-Yung Lee Managing Director +1-212-908-0560 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020185 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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