GL1800Riders Forums banner

1 - 20 of 26 Posts

·
Registered
Joined
·
691 Posts
Discussion Starter #1
Warren Buffet's company (Berkshire Hathaway, Inc.) will loan HD financial services 300 million at 15% interest with the note due in 2014. This guy knows how to make his cash work!

Dennis
 

·
Registered
Joined
·
343 Posts
I thought Jimmy Buffett was going to loan them money.
 

·
Registered
Joined
·
24,624 Posts
High Interest

15%?!?!. It will be very tough for Harley to make a profit if they have to
borrow money at 15%. The motorcycle market is going to be difficult at
best for the next year or two even without expensive loans.
 

·
Registered
Joined
·
3,293 Posts
cycledude says it all
 

·
Registered
Joined
·
687 Posts
loan

Warren Buffet's company (Berkshire Hathaway, Inc.) will loan HD financial services 300 million at 15% interest with the note due in 2014. This guy knows how to make his cash work!

Dennis

Where did you see this, hard to imagine a company borrowing at 15% no matter how bad they are hurting?
 

·
Registered
Joined
·
19,050 Posts
Cheeseburger in paradise
 
H

·
Guest
Joined
·
0 Posts
Once again Warren Buffett makes the best of a bad situation. Yesterday, Harley-Davidson (HOG) announced it will be raising $600 million through an offering of 15% debt.
As you might expect, Buffett’s involvement in the deal sparked a rally in Harley shares. The shares of the beaten down motorcycle maker surged more than 15% today while the rest of the auto industry had a pretty rough day.
Is it a good move for Buffett?
Yes.
Is it a good move for investors to bid up shares of Harley-Davidson?
Probably not.
Frankly, it still blows my mind how many investors are willing to plow in after Buffett. Just take a look at the Goldman Sachs (GS) deal he pulled off a few months ago. He put $5 billion into 10% Goldman’s perpetual preferred shares.
The Goldman deal gave Buffett one of his favorite types of investments - a (synthetic) convertible security. It’s the type of investment the University of Southern California’s Professor Tom Taulli says is “Buffett’s preferred method of investing.”
The net cost of the investment at the time was $5 billion cash for a position worth about $8.2 billion at the time (cost breakdown here). Regardless, investors still jumped on Goldman shares after they got, what many believed, was the Berkshire seal of approval.
A Tough Road Ahead
Harley is a bit of a different situation though. Harley hasn’t weathered the downturn well at all. Its sales last quarter were off by 19.6% in YOY terms. And when you’re considering yesterday’s sales report from the automakers (about 40% decline on average I’d say), there’s probably not going to be much demand for top-of-the-line motorcycles.
What’s even worse is Harley borrowed the $600 million in response to a $500 million debt coming due in a few weeks (although all or part of it could be getting refinanced, we don’t know yet) and to be used to lend more to its customers.
Maybe I’m looking at it a bit too simplistically, but a company can’t keep borrowing at 15% and lending at 1% or 2% forever. Yes, there are profits per sale and all that to consider, but from the bottom up, it doesn’t look very sustainable.
With no recovery in sight, there are probably more tough times ahead for Harley and this financing will only help the company partially weather the storm.
A Win/Win Buffett Style
Regardless of what you think of Harley shares, this deal looks to be another win/win for Buffett. As Harley continues to scrape by, it’ll have to pay those 15% interest payments to Berkshire. In a worst case scenario, if Harley would get crushed by the weight of its own debt, Berkshire would get an ownership stake in one of America’s most iconic brands (how many other brands are thousands of people willing to have tattooed on their bodies?).
This deal does tell us one thing, Buffett is seeing value in bonds. We’ve covered how corporate bonds are likely to beat stocks in the short and medium terms in the Prosperity Dispatch a few times and it’s good to see Buffett more and more on bonds. When it comes to the Harley deal itself, it’s a win/win for investors, like Buffett, in these high-yield bonds. As for the shares of the company which soared yesterday, it’s a totally different story.
 

·
Registered
Joined
·
4,013 Posts
I told everyone here to buy Harley stock, it will go back up. This time in a BIG way. They are by no means broke, just not selling like they did last year. All companies have lean months and then there are the profit making months. It all equals out....
 

·
Registered
Joined
·
747 Posts
Very good insight Hal. I see a couple of issues here. If a company has to borrow money at 15%, IMO the financial bean counters see a high risk situation. That in itself tell a big story about the stability of the company. It would not surprise me to see that stock take a giant nose dive. If I were a stock holder, I would be selling ASAP, because before any dividend comes to stock, the debt holders get paid first. As mentioned by Hal, it is conceivable that Buffet has in mind picking up the company AFTER the stock bottoms out. He has positioned himself perfect. That's why he is Warren Buffet.
 

·
Registered
Joined
·
164 Posts
I'm not so sure about all this. I see one scene that might play out as a posibility, no matter how remote that scene is.

Right now, even though the profits are returned to Japan, the Gold Wing does keep American workers employeed, much the same way some Toyota models do. When Honda moves Gold Wing production back to Japan, that will leave a lot of people sort of caught in the middle. They want to move up to a big bike, but they also want to support American workers, not workers in Japan. So the only place they realistically could turn is to HD.

Now HD would need to capitalize on that by producing a bike similar to the Gold Wing to meet the demands of such a group, much the way Honda capitalized on the "Cruser" craze by producing a bike similar to the Sportster. But, don't think just because HD produces the types of bikes they do, that they are not capable of producing a different style of bike.

And I will tell you that the fit and finish of the HD's I've looked at are first rate. So the only thing that holds them back right now is their un-willingness to produce a 21st Century touring bike and their subborn insistance that an air cooled V-Twin is the way to go.

That's just an opinion (and therfore worth exactly what you paid for it), but if HD can hang on thru the worst of it, they may re-emerge stonger than they are today because of a growing "buy American" trend.
 

·
Registered
Joined
·
113 Posts
I told everyone here to buy Harley stock, it will go back up. This time in a BIG way. They are by no means broke, just not selling like they did last year. All companies have lean months and then there are the profit making months. It all equals out....
Don't know about that. Could also go down in a very big way. 15% interest suggests a near desperate situation. Should this downturn last several years (as it very well may) it's doubtful whether HD can survive. Unfortunately we are long way from solving the many problems we are faced with and there is considerable doubt that spending billions/trillions to dig out of this mess will solve the problem (not to mention the new problems such a massive debtload will engender). In the final analysis, looks to me buying HD here is very speculative.
 

·
Registered
Joined
·
3,699 Posts
When Honda moves Gold Wing production back to Japan, that will leave a lot of people sort of caught in the middle. They want to move up to a big bike, but they also want to support American workers, not workers in Japan. So the only place they realistically could turn is to HD.
I for one don't believe the support for the American worker isn't as strong as you think it is.

If "John Doe" wants a Goldwing that's made in Japan, the support of American workers woudn't stop him from buying what he wants.
Sad but true.
 

·
Registered
Joined
·
4,262 Posts
And if interest rates rise like they did in the early 80s (prime at 15%+) this may look like a steal in 2 years. Buffett may be betting that the cash that is going to be dumped into bailouts etc is going to lead to wild inflation.
 

·
Registered
Joined
·
2,405 Posts
Once again Warren Buffett makes the best of a bad situation. Yesterday, Harley-Davidson (HOG) announced it will be raising $600 million through an offering of 15% debt.
As you might expect, Buffett’s involvement in the deal sparked a rally in Harley shares. The shares of the beaten down motorcycle maker surged more than 15% today while the rest of the auto industry had a pretty rough day.
Is it a good move for Buffett?
Yes.
Is it a good move for investors to bid up shares of Harley-Davidson?
Probably not.
Frankly, it still blows my mind how many investors are willing to plow in after Buffett. Just take a look at the Goldman Sachs (GS) deal he pulled off a few months ago. He put $5 billion into 10% Goldman’s perpetual preferred shares.
The Goldman deal gave Buffett one of his favorite types of investments - a (synthetic) convertible security. It’s the type of investment the University of Southern California’s Professor Tom Taulli says is “Buffett’s preferred method of investing.”
The net cost of the investment at the time was $5 billion cash for a position worth about $8.2 billion at the time (cost breakdown here). Regardless, investors still jumped on Goldman shares after they got, what many believed, was the Berkshire seal of approval.
A Tough Road Ahead
Harley is a bit of a different situation though. Harley hasn’t weathered the downturn well at all. Its sales last quarter were off by 19.6% in YOY terms. And when you’re considering yesterday’s sales report from the automakers (about 40% decline on average I’d say), there’s probably not going to be much demand for top-of-the-line motorcycles.
What’s even worse is Harley borrowed the $600 million in response to a $500 million debt coming due in a few weeks (although all or part of it could be getting refinanced, we don’t know yet) and to be used to lend more to its customers.
Maybe I’m looking at it a bit too simplistically, but a company can’t keep borrowing at 15% and lending at 1% or 2% forever. Yes, there are profits per sale and all that to consider, but from the bottom up, it doesn’t look very sustainable.
With no recovery in sight, there are probably more tough times ahead for Harley and this financing will only help the company partially weather the storm.
A Win/Win Buffett Style
Regardless of what you think of Harley shares, this deal looks to be another win/win for Buffett. As Harley continues to scrape by, it’ll have to pay those 15% interest payments to Berkshire. In a worst case scenario, if Harley would get crushed by the weight of its own debt, Berkshire would get an ownership stake in one of America’s most iconic brands (how many other brands are thousands of people willing to have tattooed on their bodies?).
This deal does tell us one thing, Buffett is seeing value in bonds. We’ve covered how corporate bonds are likely to beat stocks in the short and medium terms in the Prosperity Dispatch a few times and it’s good to see Buffett more and more on bonds. When it comes to the Harley deal itself, it’s a win/win for investors, like Buffett, in these high-yield bonds. As for the shares of the company which soared yesterday, it’s a totally different story.
This proves those that have money make more money--those that spend money have nothing left.
 

·
Registered
Joined
·
129 Posts
Warren Buffet

Maybe Warren Buffet wants to own a motorcycle company down the road. You can bet your Wing there will be inflation in a few years as there will be an additional Trillion $ pumped into the economy and it has to go somewhere.
Hopefully, most of us Wingnuts are old enough to remember the Jimmy Cater administration. Remember...Peanut farmer...Change...Well, we are there again and the same thing is about to happen. You don't need a Ph.D in economics to see this one coming at you.
 

·
Registered
Joined
·
2,791 Posts
Hopefully, most of us Wingnuts are old enough to remember the Jimmy Cater administration. Remember...Peanut farmer...Change...Well, we are there again and the same thing is about to happen. You don't need a Ph.D in economics to see this one coming at you.
:agree: I do remember it very well. I also remember that it took a bold economic policy from our next president to get us out of the Carter mess. The difference this time is that the economic policy of our new president just wont work. BTW It was worse then than it is right now but you wouldn't know it by what is being reported by the media. We haven't got to double digit inflation and unemployment yet. JMHO
 
1 - 20 of 26 Posts
Top