Shares of Harley-Davidson (HOG) are revving up today on news that Warren Buffett's Berkshire Hathaway bought $300 million worth of the firm's senior unsecured notes. (Davis Selected Advisers, Harley's biggest shareholder, bought another $300 million). The stock jumped nearly 23 percent before falling back a bit late in the day. So is now the time for another look at the motorcycle legend?
Not so fast. The bottom line is Harley is still under pressure from a weak economy. Right now, it's in the process of slashing some 1,100 jobs and dealing with fallout from the credit crunch in its financing arm. Analysts note the financing business needs about $1 billion worth of financing for 2009. This deal puts "a good dent" in that, analysts at William Blair note, but it doesn't make Harley's sales look any rosier.
Unfortunately, the deal also highlights ongoing tightness in credit markets. It's rare that Buffett makes an investment on unfavorable terms, and right now he's getting some truly great deals. That's because nobody else is lending, and for retail investors it's just the latest sign to avoid companies in need of cash during the toughest lending environment in decades. At a 15 percent annual interest rate on his investment, Buffett is getting basically twice the rate usually paid on corporate bonds in more normal times. Good for him. Not so good for the market.
Reader Comments