Tuesday, February 3, 2009

Buffett Buying Harley-Davidson Bonds

Harley Davidson stock was up 15% today after news emerged that Berkshire Hathaway was buying $300 million of the company's bonds in a private transaction. HOG raised a total of $600 million in debt, with the remaining $300 million purchased by Davis Selected Adviser, the largest holder of Harley stock. As the Omaha billionaire still has quite a bit of cash, a presumably infinite investment horizon and still believes in the old economy, Harley bonds seem like a slam dunk investment. Of course his most recent forays in the primary market have been a little shaky, with his Goldman and USG bond investments late last year not faring too hot.

Harley, whose bikes sell at prices from $6,999 to $35,499, has recently been hit by the depression too: it is firing 1,100 people and is closing three plants to save $60 million a year. Harley currently has almost $4 billion of debt on EBITDA in the $1.3 billion range. Hopefully the Hells Angels are doing better financially these days than the rest of the economy or otherwise this will end up being just another overleveraged, transportation company with a 20th century brand name.

Amusing, the underwriting syndicate consisted of Morgan Stanley, JP Morgan and Citigroup - did HOG really need three separate banks calling Buffett to make sure he does the deal? Either way, they all demonstrated good judgment by calling the very top name in the rolodex first.
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