According to Reuters, the American motorcycle manufacturer announced on Tuesday the sale of $600 million of debt to Warren Buffett's Berkshire Hathaway Inc. Therefore, its shares rose as much as 22.6 percent.
Fortunately, the sale brings more cash to the US motorcycle maker after serious losses of up to 58 percent decline in fourth-quarter profit. Berkshire and money manager Davis Selected Advisers LP, the largest Harley shareholder, each bought $300 million of senior unsecured notes which carry an annual interest rate of 15 percent. In fact, the notes mature in 2014.
According to Thomson ShareWatch, Davis owns about 10.2 percent of Harley's stock. Judging by Buffett's past investments, it is clear that it prefers companies with strong management and market-leading positions, two things that Harley Davidson doesn't lack. However, what Harley badly lacks these days of the economic recession is money. Although it has cut 1,100 jobs, more the 12 percent of the workforce, the US motorcycle maker is still not coping well with financial crisis. In response to the credit crunch, Berkshire decided to make more investments.
"Harley's finance arm needs capital in a highly constrained credit environment," said Ed Aaron, an analyst at RBC Capital Markets in Denver. "We knew capital would be available at a price. The stock is up because Harley resolved part of its liquidity needs." As a matter of fact, Aaron has a "sector perform" rating on Harley stock.
Harley shares were up $1.68, or 12.4 percent, at $13.54 in afternoon trading on the New York Stock Exchange, after earlier rising to $14.54.
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