Harley-Davidson jumped into the bond market to raise US$500m on Wednesday after higher margins helped the motorcycle manufacturer post a return to profit in the fourth quarter of last year.
The Milwaukee-based manufacturer's fourth quarter earnings on Tuesday showed the company was weathering the impact of supply chain bottlenecks, which have been responsible for inflation concerns that have weighed on market sentiment in recent weeks.
Harley-Davidson priced a US$500m five-year senior unsecured note at 130bp over Treasuries, rated Baa3/BBB-/BBB+, coming in from initial price thoughts at 145bp area over Treasuries and in line with guidance at 130bp area. Bookrunners were Citigroup, Goldman Sachs, Siebert William Shanks and US Bank.
Market participants said Harley-Davidson's strong earnings showed it was among the companies that have managed to protect margins by passing down price increases to consumers.
"If they're putting out some good numbers and have been able to show that they've navigated some of the supply chain issues effectively, that does lead to a bit of a benefit for issuers who have the ability to access the market right after earnings," said a banker.
Despite the increasingly ambitious guidance put out by US corporations, a vast swathe were still beating analysts' expectations in the most recently round of quarterly earnings, he said.
The motorcycle maker reported a 40% bump in fourth-quarter revenues to US$1.016bn, with the popularity of its off-road touring bikes during the Covid-19 pandemic helping to power sales. Margins have also improved as the company responds to supply chain issues by focusing on selling more profitable lines of motorcycles and cutting costs. Harley-Davidson put out guidance for 11%-12% operating margins in 2022.
The company had also included surcharges on some bike models in the US last year to offset higher freight and commodity costs. The surcharge is expected to extend to its global business, too.
These improvements in efficiencies, along with strong performance in its financial services arm, helped net income recover to US$22m in the quarter after a US$96m loss in the same period of 2020.
The last time Harley-Davidson had leaned into the corporate bond market was in June 2020 when it paid up to raise US$700m, borrowing at 300bp over Treasuries. Those 3.35% 2025 notes last changed hands on February 3 at a G-spread of 106bp over Treasuries, according to MarketAxess.