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Asset-Backed Financing | 6 Months Ended
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Jun. 30, 2024
Transfers and Servicing [Abstract] |
Asset-Backed Financing | Asset-Backed Financing The Company participates in asset-backed financing both through asset-backed securitization transactions and through asset-backed commercial paper conduit facilities. In the Company's asset-backed financing programs, the Company transfers retail motorcycle finance receivables to special purpose entities (SPEs), which are considered VIEs under U.S. GAAP. Each SPE then converts those assets into cash through the issuance of debt. The Company retains servicing rights for all of the retail motorcycle finance receivables transferred to SPEs as part of an asset-backed financing. The accounting treatment for asset-backed financings depends on the terms of the related transaction and the Company’s continuing involvement with the VIE. In transactions where the Company has power over the significant activities of the VIE and has an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE, the Company is the primary beneficiary of the VIE and consolidates the VIE within its consolidated financial statements. On a consolidated basis, the asset-backed financing is treated as a secured borrowing in this type of transaction and is referred to as an on-balance sheet asset-backed financing. In transactions where the Company is not the primary beneficiary of the VIE, the Company must determine whether it can achieve a sale for accounting purposes under ASC Topic 860, Transfers and Servicing. To achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond the Company’s control. If the Company does not meet all of these criteria for sale accounting, then the transaction is accounted for as a secured borrowing and is referred to as an on-balance sheet asset-backed financing. If the Company meets all three of the sale criteria above, the transaction is recorded as a sale for accounting purposes and is referred to as an off-balance sheet asset-backed financing. Upon sale, the retail motorcycle finance receivables are removed from the Company’s Consolidated balance sheets and a gain or loss is recognized for the difference between the cash proceeds received, the assets derecognized, and the liabilities recognized as part of the transaction. The gain or loss on sale is recorded in Financial services revenue on the Consolidated statements of operations. The Company is not required, and does not currently intend, to provide any additional financial support to the on- or off-balance sheet VIEs associated with these transactions. Investors and creditors in these transactions only have recourse to the assets held by the VIEs. The assets and liabilities related to the on-balance sheet asset-backed financings included in the Consolidated balance sheets were as follows (in thousands):
| June 30, 2024
| Finance receivables |  | Allowance for credit losses |  | Restricted cash |  | Other assets |  | Total assets |  | Asset-backed debt, net
On-balance sheet assets and liabilities: |  |  |  |  |  |  |  |  |  |  |
Consolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed securitizations | $ | 2,404,604 |  |  | $ | (130,484) |  |  | $ | 116,550 |  |  | $ | 4,685 |  |  | $ | 2,395,355 |  |  | $ | 1,921,408 |
Asset-backed U.S. commercial paper conduit facility | 469,244 |  |  | (25,439) |  |  | 28,205 |  |  | 1,753 |  |  | 473,763 |  |  | 435,930 |
Unconsolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed Canadian commercial paper conduit facility | 105,710 |  |  | (4,744) |  |  | 6,687 |  |  | 142 |  |  | 107,795 |  |  | 91,379 |
| $ | 2,979,558 |  |  | $ | (160,667) |  |  | $ | 151,442 |  |  | $ | 6,580 |  |  | $ | 2,976,913 |  |  | $ | 2,448,717 |
| December 31, 2023
| Finance receivables |  | Allowance for credit losses |  | Restricted cash |  | Other assets |  | Total assets |  | Asset-backed debt, net
On-balance sheet assets and liabilities: |  |  |  |  |  |  |  |  |  |  |
Consolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed securitizations | $ | 2,348,817 |  |  | $ | (126,882) |  |  | $ | 94,137 |  |  | $ | 6,719 |  |  | $ | 2,322,791 |  |  | $ | 1,877,368 |
Asset-backed U.S. commercial paper conduit facility | 259,441 |  |  | (14,001) |  |  | 16,443 |  |  | 2,066 |  |  | 263,949 |  |  | 233,258 |
Unconsolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed Canadian commercial paper conduit facility | 81,916 |  |  | (3,667) |  |  | 4,425 |  |  | 211 |  |  | 82,885 |  |  | 70,742 |
| $ | 2,690,174 |  |  | $ | (144,550) |  |  | $ | 115,005 |  |  | $ | 8,996 |  |  | $ | 2,669,625 |  |  | $ | 2,181,368 |
| June 30, 2023
| Finance receivables |  | Allowance for credit losses |  | Restricted cash |  | Other assets |  | Total assets |  | Asset-backed debt, net
On-balance sheet assets and liabilities: |  |  |  |  |  |  |  |  |  |  |
Consolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed securitizations | $ | 2,361,561 |  |  | $ | (124,796) |  |  | $ | 115,616 |  |  | $ | 8,977 |  |  | $ | 2,361,358 |  |  | $ | 1,924,545 |
Asset-backed U.S. commercial paper conduit facility | 351,848 |  |  | (18,585) |  |  | 24,486 |  |  | 1,655 |  |  | 359,404 |  |  | 318,406 |
Unconsolidated VIEs: |  |  |  |  |  |  |  |  |  |  |
Asset-backed Canadian commercial paper conduit facility | 96,278 |  |  | (4,235) |  |  | 6,805 |  |  | 169 |  |  | 99,017 |  |  | 84,269 |
| $ | 2,809,687 |  |  | $ | (147,616) |  |  | $ | 146,907 |  |  | $ | 10,801 |  |  | $ | 2,819,779 |  |  | $ | 2,327,220 |
On-Balance Sheet Asset-Backed Securitization VIEs – The Company transfers U.S. retail motorcycle finance receivables to SPEs that in turn issue secured notes to investors, with various maturities and interest rates, secured by future collections of the purchased U.S. retail motorcycle finance receivables. Each on-balance sheet asset-backed securitization SPE is a separate legal entity, and the U.S. retail motorcycle finance receivables included in the asset-backed securitizations are only available for payment of the secured debt and other obligations arising from the asset-backed securitization transactions and are not available to pay other obligations or claims of the Company’s creditors until the associated secured debt and other obligations are satisfied. Restricted cash balances held by the SPEs are used only to support the securitizations. There are no amortization schedules for the secured notes; however, the debt is reduced monthly as available collections on the related U.S. retail motorcycle finance receivables are applied to outstanding principal. The secured notes currently have various contractual maturities ranging from 2025 to 2031. The Company is the primary beneficiary of its on-balance sheet asset-backed securitization VIEs because it retains servicing rights and a residual interest in the VIEs in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE. Quarterly transfers of U.S. retail motorcycle finance receivables to SPEs, the respective proceeds, and the respective proceeds, net of discounts and issuance costs were as follows (in millions):
| 2024 |  | 2023
| Transfers |  | Proceeds |  | Proceeds, net |  | Transfers |  | Proceeds |  | Proceeds, net
First quarter | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 628.5 |  |  | $ | 550.0 |  |  | $ | 547.7 |
Second quarter | 607.8 |  | 550.0 |  | 547.6 |  | 0.0 |  | 0.0 |  | 0.0
| $ | 607.8 |  |  | $ | 550.0 |  |  | $ | 547.6 |  |  | $ | 628.5 |  |  | $ | 550.0 |  |  | $ | 547.7 |
On-Balance Sheet Asset-Backed U.S. Commercial Paper Conduit Facility VIE – In November 2023, the Company renewed its $1.50 billion revolving facility agreement (the U.S. Conduit Facility) with third-party banks and their asset-backed U.S. commercial paper conduits. Under the revolving facility agreement, the Company may transfer U.S. retail motorcycle finance receivables to an SPE, which in turn may issue debt to those third-party banks and their asset-backed U.S. commercial paper conduits. From November 2020 through November 2022, the U.S. Conduit Facility allowed for uncommitted additional borrowings of up to $300.0 million at the lenders’ discretion. At June 30, 2023, $18.4 million remained outstanding under the uncommitted additional borrowings previously allowed. Availability under the U.S. Conduit Facility is based on, among other things, the amount of eligible U.S. retail motorcycle finance receivables held by the SPE as collateral. Under the U.S. Conduit Facility, the assets of the SPE are restricted as collateral for the payment of the debt or other obligations arising in the transaction and are not available to pay other obligations or claims of the Company’s creditors. The terms for this debt provide for interest on the outstanding principal based on prevailing commercial paper rates if funded by a conduit lender through the issuance of commercial paper. The interest rate on all outstanding debt and future borrowings, if not funded by a conduit lender through the issuance of commercial paper, is based on the Secured Overnight Financing Rate (SOFR), with provisions for a transition to other benchmark rates in the future, if necessary. In addition to interest, a program fee is assessed based on the outstanding debt principal balance. The U.S. Conduit Facility also provides for an unused commitment fee based on the unused portion of the total aggregate commitment. Prior to November 2022, when calculating the unused fee, the aggregate commitment did not include any unused portion of the $300.0 million uncommitted additional borrowings allowed. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the U.S. Conduit Facility, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables held by the SPE is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 30, 2024, the U.S. Conduit Facility had an expiration date of November 20, 2024. The Company is the primary beneficiary of its U.S. Conduit Facility VIE because it retains servicing rights and a residual interest in the VIE in the form of a debt security. As the servicer, the Company is the variable interest holder with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As a residual interest holder, the Company has the obligation to absorb losses and the right to receive benefits which could potentially be significant to the VIE. There were no finance receivable transfers under the U.S. Conduit Facility during the second quarter of 2024 or first half of 2023. During the first quarter of 2024, the Company transferred $334.8 million of U.S. retail motorcycle finance receivables to an SPE which, in turn, issued $306.0 million of debt under the U.S. Conduit Facility. On-Balance Sheet Asset-Backed Canadian Commercial Paper Conduit Facility – In June 2024, the Company renewed and amended its revolving facility agreement (Canadian Conduit) with a Canadian bank-sponsored asset-backed commercial paper conduit. Under the renewed and amended agreement, the Canadian Conduit is contractually committed, at the Company's option, to purchase eligible Canadian retail motorcycle finance receivables for proceeds up to C$165.0 million, which was a C$40.0 million increase in the total commitment. The transferred assets are restricted as collateral for the payment of the associated debt. The terms for this debt provide for interest on the outstanding principal based on prevailing market interest rates plus a specified margin. The Canadian Conduit also provides for a program fee and an unused commitment fee based on the unused portion of the total aggregate commitment. There is no amortization schedule; however, the debt is reduced monthly as available collections on the related finance receivables are applied to outstanding principal. Upon expiration of the Canadian Conduit, any outstanding principal will continue to be reduced monthly through available collections. The expected remaining term of the related receivables is approximately 5 years. Unless earlier terminated or extended by mutual agreement of the Company and the lenders, as of June 30, 2024, the Canadian Conduit had an expiration date of June 30, 2025. The Company is not the primary beneficiary of the Canadian bank-sponsored, multi-seller conduit VIE; therefore, the Company does not consolidate the VIE. However, the Company treats the conduit facility as a secured borrowing as it maintains effective control over the assets transferred to the VIE and, therefore, does not meet the requirements for sale accounting. As the Company participates in and does not consolidate the Canadian bank-sponsored, multi-seller conduit VIE, the maximum exposure to loss associated with this VIE, which would only be incurred in the unlikely event that all the finance receivables and underlying collateral have no residual value, was $16.4 million at June 30, 2024. The maximum exposure is not an indication of the Company's expected loss exposure. Quarterly transfers of Canadian retail motorcycle finance receivables to the Canadian Conduit and the respective proceeds were as follows (in millions):
| 2024 |  | 2023
| Transfers |  | Proceeds |  |  | Transfers |  | Proceeds |
First quarter | $ | 34.9 |  |  | $ | 28.6 |  |  |  | $ | — |  |  | $ | — |  |
Second quarter | 20.6 |  | 16.9 |  |  | 40.5 |  | 33.5 |
| $ | 55.5 |  |  | $ | 45.5 |  |  |  | $ | 40.5 |  |  | $ | 33.5 |  |

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- Definition The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 210 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(11)) -Publisher 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