Motorcycle financing contracts will secure $550 million in asset-backed securities (ABS) that the Harley Davidson Motorcycle Trust, 2022-A, is expected to issue to bondholders.
Fixed-rate, simple interest promissory notes and security agreements related to the purchase of new and used motorcycles will secure the notes, in a deal where Barclays, TD Securities and Wells Fargo Securities are joint book runners, according to a Securities and Exchange Commission prospectus.
Moody’s Investors Service noted that Wells Fargo is the lead underwriter.
Proceeds from the deal will purchase the loan assets and fund the reserve account, according to the prospectus. Also, the notes will benefit from overcollateralization, reserve fund and excess cash flow.
Eagle Mark Savings Bank originated the loans, which have an average size of $19,443. Also, Harley-Davidson Credit Corp. (HDCC)—a wholly owned subsidiary of Harley-Davidson Financial Services, Inc.—will purchase the loans for the trust, according to a Moody’s pre-sale report.
A majority of the underlying collateral, at 64%, are new, while 36% of the vehicles are used, Moody’s said. On a weighted average (WA) basis, the underlying loans have a FICO score of 756, an APR of 7.2%, an original term of 71 months, and a remaining term of 64 months.
According to the SEC prospectus, Harley Davidson, 2022-A, will issue notes through five classes.
For its part, Moody’s notes several credit strengths to the deal. Previous securitizations through the Harley Davidson Motorcycle Trust have performed within its expectations, HDCC is a financially strong and experienced servicer, and the 2022-A’s credit quality is slightly better than that of the 2021-B, albeit that both are prime. The 2021-B had a WA FICO score of 754.
Moody’s expects to assign ratings ranging from P-1 on the $93 million, class A-1 notes to ‘Aaa’ on the $74.9 million, class A-4 notes.
Among potential credit challenges, Moody’s said, are that used motor vehicle prices are at risk of falling. Should any loans default, that event could expose the transaction to lower recovery rates as vehicles connected to the defaulted loans are sold to repay the debt.
Final scheduled repayment dates vary from April 2023 for the class A-1 notes, to January 2030 for the class A-4 notes.
