Harley Davidson 2015 Annual Report Download - page 44

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44
Asset-Backed U.S. Commercial Paper Conduit Facility Variable Interest Entity (VIE) – On December 14, 2015, the
Company entered into a new revolving facility agreement (U.S. Conduit) with a third party bank-sponsored asset-backed U.S.
commercial paper conduit, which provides for a total aggregate commitment of $600.0 million. The prior agreement expired on
December 14, 2015 and had similar terms. At December 31, 2015, 2014, and 2013, the Company had no outstanding
borrowings under the U.S. Conduit.
This debt provides for interest on outstanding principal based generally on prevailing commercial paper rates or LIBOR
to the extent the advance is not funded by a conduit lender through the issuance of commercial paper plus, in each case, a
program fee based on outstanding principal. The U.S. Conduit also provides for an unused commitment fee based on the unused
portion of the total aggregate commitment of $600.0 million. There is no amortization schedule; however, the debt will be
reduced monthly as available collections on the related finance receivable collateral are applied to outstanding principal. Upon
expiration of the U.S. Conduit, any outstanding principal will continue to be reduced monthly through available collections.
Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of December 31, 2015, the U.S.
Conduit expires December 14, 2016.
Term Asset-Backed Securitization VIEs – For all of its term asset-backed securitization transactions, the Company
transferred U.S. retail motorcycle finance receivables to separate VIEs, which in turn issued secured notes, with various
maturities and interest rates to investors. All of the notes held by the VIEs are secured by future collections of the purchased
U.S. retail motorcycle finance receivables. The U.S. retail motorcycle finance receivables included in the term asset-backed
securitization transactions are not available to pay other obligations or claims of the Company's creditors until the associated
debt and other obligations are satisfied. Restricted cash balances held by the VIEs are used only to support the securitizations.
There is no amortization schedule for the secured notes; however, the debt is reduced monthly as available collections on the
related retail motorcycle finance receivables are applied to outstanding principal. The secured notes’ contractual lives have
various maturities ranging from 2016 to 2022.
In 2015, the Company transferred a total of $1.31 billion of U.S. retail motorcycle finance receivables to two separate
SPEs. The SPEs in turn issued $1.20 billion of secured notes. In 2014, the Company transferred $924.9 million of U.S. retail
motorcycle finance receivables to one SPE. The SPE in turn issued $850.0 million of secured notes.
Intercompany Borrowings – HDFS and the Company have had in effect term loan agreements under which HDFS
borrowed from the Company. As of December 31, 2015, there were no intercompany loans outstanding and the intercompany
loan balance of $250.0 million outstanding as of December 31, 2014 was repaid during the first quarter of 2015. The term loans
provide for monthly interest based on the prevailing commercial paper rates and principal due at maturity or upon demand by
the Company. The term loan balances and related interest are eliminated in the Company's consolidated financial statements.
During 2014, HDFS and the Company had in effect the following term loan agreements under which HDFS borrowed
from the Company (in thousands):
Principal Amount Issue Date Maturity Date
$300,000 June 2013 April 2014 *
$150,000 September 2013 April 2014 *
$300,000 April 2014 April 2015 **
$250,000 June 2014 September 2014 *
$150,000 September 2014 April 2015 *
* This loan was repaid on or before the maturity date.
** $50.0 million of this loan was repaid in November 2014
Support Agreement - The Company has a support agreement with HDFS whereby, if required, the Company agrees to
provide HDFS with financial support in order to maintain HDFS’ fixed-charge coverage at 1.25 and minimum net worth of
$40.0 million. Support may be provided at the Company’s option as capital contributions or loans. Accordingly, certain debt
covenants may restrict the Company’s ability to withdraw funds from HDFS outside the normal course of business. No amount
has ever been provided to HDFS under the support agreement.
Operating and Financial Covenants – HDFS and the Company are subject to various operating and financial covenants
related to the Global Credit Facilities and various operating covenants under the Notes and the U.S. and Canadian asset-backed
commercial paper conduit facilities. The more significant covenants are described below.
The operating covenants limit the Company’s and HDFS’ ability to:
• assume or incur certain liens;