Harley-Davidson's debt may be on the verge of junk status

By Claudia Assis

S&P puts Harley-Davidson's credit under negative watch, putting the May turnaround plan announcement in the spotlight

A rider on a Harley-Davidson motorcycle in California. S&P said it was "unsure" how long the motorcycle maker will take to bring margins to a level appropriate for an investment-grade debt rating.

A day after Harley-Davidson reported quarterly earnings that disappointed Wall Street, the famed motorcycle maker got a warning that its debt ratings may be cut to junk by spring.

S&P Global Ratings said late Wednesday it placed its credit ratings on Harley-Davidson (HOG) on a negative watch. That means S&P could cut its ratings on the company's bonds in the near future. The agency rates Harley-Davidson's debt BBB-, the last rung of investment grade.

A slide into junk-bond territory would be a major negative credit event that would hamper the motorcycle maker's ability to borrow money, and shut out its bonds from a much larger pool of investors, including pension funds, that can only own investment-grade debt.

S&P said it would wait to take action until it can assess the company's new turnaround plan, which they expect Harley to announce in May.

"While the company has announced its intention to achieve approximately $150 million of cost savings and leverage its core product portfolio to return to sustainable growth, we remain unsure of how long it may take for Harley to restore its operating margin to a level commensurate with a BBB- rating," S&P said.

Moody's rates Harley-Davidson's debt Baa3 with a stable outlook, a rating that is on par with S&P's. Fitch Ratings rates it BBB+ with a stable outlook, which is a couple of steps above the other two ratings.

Harley-Davidson did not immediately return a request for comment. The company reported fourth-quarter earnings on Tuesday, and its quarterly results as well as its outlook for the year came in well below Wall Street's expectations.

The print, however, did show "a clear commitment to a turnaround year," analysts at DA Davidson (no relation to Harley-Davidson) said in a note Wednesday.

"Management is laying down the hammer on inventory cleanup, with [CEO Artie Starrs] showing he is truly committing to turning around a business that has been in a slump for several years," the analysts said. "While the setup from here is clearly murky in the short term, we believe the pain that will be inflicted will in turn set the company up for longer-term success."

Harley-Davidson's stock has been hurting for years. While it has bounced 5.2% off the Feb. 2 six-year closing low of $19.56 through Wednesday, the stock has shed 21.2% over the past 12 months, and tumbled 60.4% since reaching a post-pandemic high of $51.96 on May 17, 2021.

Starrs became CEO in October and ran the gauntlet of an earnings report and post-results call with analysts for the first time on Tuesday.

He said the company cut wholesale shipments to dealers and did promotions during the quarter in an effort to cut down inventories.

The company also took steps to allow more customization of its bikes and is evaluating its e-commerce strategy in order to drive traffic to dealers, he said.

Some Harley-Davidson dealers are facing challenges after a long retail decline, analysts at Raymond James said in a note. The company's e-commerce strategy thus far "has created some confusion among buyers and has led to excessive discounting," they said.

-Claudia Assis

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02-12-26 0910ET