Fitch Downgrades Harley-Davidson and HDFS IDRs to 'A-/F2'; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings has downgraded Harley-Davidson Inc. (NYSE: HOG) and HOG's 100%
owned subsidiary, Harley-Davidson Financial Services, Inc. (HDFS) as listed
below. All ratings have been removed from Rating Watch Negative where they were
placed on Jan. 30, 2009.

Harley-Davidson Inc

--Issuer Default Rating (IDR) to 'A-' from 'A'.

Harley-Davidson Financial Services

--IDR to 'A-' from 'A';

--Short-term IDR to 'F2' from 'F1';

--Senior unsecured to 'A-' from 'A'.

Harley-Davidson Funding Corporation

--Short-term IDR to 'F2' from 'F1';

--Commercial paper to 'F2' from 'F1';

--Senior unsecured to 'A-' from 'A'.

Fitch simultaneously assigns an 'A-' rating to HOG's recent issuance of $600
million five-year senior unsecured debt.

The Rating Outlook on all the ratings is Negative.

Fitch's actions affect approximately $3.2 billion of debt at HDFS and $782
million of debt at HOG. Due to the existence of a support agreement and
demonstrated support by the parent, HDFS's ratings are linked to those of HOG.
The rating actions are primarily related to developments at HDFS, including a
change in funding profile, which has led to increased borrowing costs,
deteriorating asset quality performance, and reduced operating performance. The
downgrades also reflect a reduced outlook for 2009 sales and margins at HOG (the
manufacturing operations) and higher cash outlays related to pension and
restructuring charges.

The Negative Outlook reflects the weak economic environment, which could lead to
further restructuring actions at HOG if volumes come under additional pressure;
cash outlays related to the company's pension plans in 2009 and 2010, and dealer
profitability. In addition, the deteriorating economic environment will continue
to pressure consumers and could lead to negative asset quality performance
beyond current expectations at HDFS, which could affect profitability through
additional mark to market losses on loans held for sale, retained interest
impairments, and/or increased provisioning.

The Negative Outlook also takes into account execution risk on the renewal of
the $500 million asset-backed commercial paper (ABCP) conduit that expires at
the end of March and the $950 million 364-day credit facility that expires in
July. Fitch expects that HDFS will be able to extend and increase the $500
million ABCP conduit but there is some uncertainty about cost and size. If it is
unable to do so, the facility will mature March 31, 2009. Fitch believes renewal
of the 364-day facility in July 2009 will be challenging for HDFS, with a high
probability of a reduction from the current $950 million level. This facility
and a $950 million three-year facility are primarily used to support HDFS's
commercial paper program and to fund HDFS's lending activities and operations.

The 'A-' rating reflects HOG's brand strength, distribution network, solid cash
generation from its manufacturing operations, good manufacturing operating
margins, and expanding international presence. Excluding HDFS's financial
results, Fitch estimates that HOG's manufacturing EBITDA margins in 2009 will be
in the mid-teens and that manufacturing operations will have leverage
(debt-to-EBITDA) of approximately 1.0 times (x) to 1.5x, pro forma for the
recent bond transaction. HOG has some financial flexibility in its ability to
reduce dividends and share repurchases.

Fitch is also concerned with HDFS's long-term alternatives to fund originations
if the capital markets environment remains status quo. Based on HDFS's
historical use of the asset backed securities market ($2.5 billion in 2007, $540
million in 2008), and lower retail origination levels in 2009, Fitch believes
HDFS needs approximately $1 billion in financing in 2009 in addition to its
available revolving credit facilities to replace securitization funding used
historically. This funding would allow HDFS to maintain its historical funding
volume of retail U.S. sales at approximately 53%. The company made significant
progress toward the funding goal when HOG issued $600 million in notes last
week, although the 15% coupon will pressure margins in HDFS's operation. Fitch
will look for HDFS to continue to develop and execute contingency funding plans
to meet funding requirements for 2009 and beyond on a cost-effective basis. If
HDFS is unable to obtain all or part of the needed funding, HOG's motorcycle
sales could come under additional pressure if HOG's retail customers are unable
to find alternative financing sources.

HDFS is currently in compliance with all covenants which include: HDFS's
leverage covenant of 10:1x debt to equity and a minimum interest coverage ratio
at the consolidated HOG level of 2.5:1. The revolver does not contain a material
adverse change clause. In addition, HOG must maintain HDFS's fixed-charge
coverage at 1.25x and minimum net worth of $40 million.

HDFS's operating performance has declined versus historical levels due to
substantially reduced gain-on-sale revenue, retained interest impairments,
mark-to-market losses on loans held for sale, increased funding costs, and
rising provisions for losses. Fitch believes HDFS's operating performance will
continue to trend weaker due to the economic and capital markets environment,
manifesting itself in higher provision expenses, charge-offs, and funding costs
over the near- to intermediate-term, with the potential for further retained
interest impairments and additional mark-to-market write-downs on loans held for
sale. Fitch assumes that HDFS's underlying collateral is more discretionary in
nature and would rank well below other assets in terms of priority of payment.

Fitch expects HOG's sales and operating margins will remain challenged
throughout 2009 as discretionary spending will continue to be pressured by the
financial crises and global economic slowdown. If economic conditions continue
to worsen, Fitch believes that shipment reductions beyond HOG's announced 10% to
13% reduction this year could be possible. In 2008, total Harley-Davidson brand
motorcycles shipments decreased 27,140 units or 8.2% to 303,479 bikes, while
retail sales decreased 24,005 units or 7.1% to 313,769 units, indicating
seasonally adjusted dealer inventories have decreased.

Cash used for HOG's recently announced restructuring actions will be as high as
$105 million, most of which will be incurred this year. Fitch estimates HOG will
also contribute a higher amount of cash to its pension funds this year, and
there is a risk 2010 contributions could rise further. The company announced its
capital expenditures will be reduced to $180 million-$190 million in 2009 from
$232 million last year. HOG's dividend stands at $300 million annually, and
share repurchase activity was suspended beginning in the company's last quarter.
At Dec. 31, 2008, HOG's cash balance was $594 million.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Nathan Spunt, 212-908-0202 (Harley-Davidson Inc., New York)
Craig Fraser, 212-908-0310 (Harley-Davidson Inc., New York)
Peter J. Shimkus, 312-368-2063 (Harley-Davidson Financial, Chicago)
William Artz, 312-368-2083 (Harley-Davidson Financial, Chicago)
Cindy Stoller, 212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com

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