Harley-Davidson Motorcycle Trust 2023-A Annual Report: Performance Summary

I’m here to help you understand how the Harley-Davidson Motorcycle Trust 2023-A performed this year. Think of this as a plain-English guide to your investment, without the confusing Wall Street jargon.

1. What is this Trust?

This isn't a typical company. It is a "Trust" created by Harley-Davidson Credit Corp. to hold a pool of motorcycle loans. The Trust issued about $600 million in notes to investors. When you buy a Harley on credit, that loan is bundled with thousands of others into this Trust. You receive payments based on the interest and principal paid by these motorcycle owners. Your return depends on whether these riders keep up with their payments.

2. Financial performance: The numbers

The latest report shows that borrowers are under more financial pressure. For the year ending December 31, 2025:

• Loan Losses: The percentage of loans that went bad and were written off rose to 3.44%, up from 3.31% in 2024.
• Late Payments: The number of people behind on their payments by 30 days or more increased to 5.77%, up from 5.34% last year.
• Portfolio Balance: As borrowers pay down their debt, the remaining balance in the Trust has dropped to about $385 million from the original $600 million.

In short, borrowers are struggling more, leading to more late payments and defaults than last year.

3. Wins and challenges

The biggest challenge is the economy. Inflation has cut into borrowers' extra cash, making it harder for them to pay their loans. Also, the "recovery rate"—the money the Trust gets back after repossessing and selling a bike—fell by about 4.5%. Used motorcycle prices have cooled off from their pandemic highs, so the Trust gets less money when it sells a repossessed bike.

On the bright side, the Trust keeps a safety cushion of extra assets, known as "overcollateralization," at 2.5% of the initial pool. Also, the servicing team passed its annual audit, confirming that their collection practices follow all legal rules.

4. Financial health and risks

The Trust is seeing lower credit quality. About 22% of the loans now belong to "near-prime" or "sub-prime" borrowers—people with lower credit scores. This expands the customer base but increases the risk of default.

The main risk is a spike in losses. If the economy worsens and used bike prices drop further, the Trust will recover less money from repossessed bikes. It would then have to use its reserve accounts to pay investors. If those reserves run out, investors in lower-rated notes could miss out on interest or principal payments.

5. Future outlook

The Trust is playing it safe. Management is tightening its lending standards to prevent further credit issues. Future performance depends heavily on unemployment rates and used vehicle prices. If inflation and interest rates stay high, the Trust expects late payments to stay between 5.5% and 6.0% next year. Expect some ups and downs in your cash flow as the Trust works through the remaining loans.

Decision-making tip: When reviewing this investment, focus on the "Late Payments" and "Loan Losses" trends. If these numbers continue to climb, it may signal increased risk for the remaining principal payments. Keep an eye on the broader used motorcycle market, as it directly impacts the Trust's ability to recover funds from defaulted loans.

Disclaimer: I am an AI, not a financial advisor. This summary is for educational purposes and should not be considered investment advice.