Hertz 2007 Annual Report Download - page 109

rate per annum of 7.875% and the Senior Subordinated Notes bear interest at a rate per annum of 10.5%.
Hertz’s obligations under the indentures are guaranteed by each of its direct and indirect domestic
subsidiaries that is a guarantor under the Senior Term Facility.
Both the indenture for the Senior Notes and the indenture for the Senior Subordinated Notes contain
covenants that, among other things, limit the ability of Hertz and its restricted subsidiaries, described in
the respective indentures, to incur more debt, pay dividends, redeem stock or make other distributions,
make investments, create liens, transfer or sell assets, merge or consolidate and enter into certain
transactions with Hertz’s affiliates. The indenture for the Senior Subordinated Notes also contains
subordination provisions and limitations on the types of senior subordinated debt that may be incurred.
The indentures also contain certain mandatory and optional prepayment or redemption provisions and
provide for customary events of default.
On January 12, 2007, Hertz completed exchange offers for its outstanding Senior Notes and Senior
Subordinated Notes whereby over 99% of the outstanding notes were exchanged for a like principal
amount of new notes with identical terms that were registered under the Securities Act of 1933 pursuant
to a registration statement on Form S-4.
Fleet Financing
U.S. Fleet Debt. In connection with the Acquisition, Hertz Vehicle Financing LLC, or ‘‘HVF,’’ a
bankruptcy-remote special purpose entity wholly-owned by Hertz, entered into an amended and
restated base indenture, dated as of December 21, 2005, with BNY Midwest Trust Company as trustee,
or the ‘‘ABS Indenture,’’ and a number of related supplements to the ABS Indenture, each dated as of
December 21, 2005, with BNY Midwest Trust Company as trustee and securities intermediary, or,
collectively, the ‘‘ABS Supplement.’’ On the Closing Date, HVF, as issuer, issued approximately
$4,300 million of new medium term asset-backed notes consisting of 11 classes of notes in two series
under the ABS Supplement, the net proceeds of which were used to finance the purchase of vehicles
from related entities and the repayment or cancellation of existing debt. HVF also issued approximately
$1,500 million of variable funding notes in two series, none of which were funded at closing. As of
December 31, 2007, $4,299.9 million (net of a $0.1 million discount) were outstanding in the form of
these medium term notes.
Each class of notes has an expected final payment date approximately three, four or five years from the
Closing Date. The variable funding notes will be funded through the bank multi seller commercial paper
market. The assets of HVF, including the U.S. car rental fleet owned by HVF and certain related assets,
collateralize the U.S. Fleet Debt and Pre-Acquisition ABS Notes. Consequently, these assets will not be
available to satisfy the claims of our general creditors.
On October 24, 2007, supplements to the ABS Indenture were amended to increase the maximum
non-eligible vehicle amount from 65% to 85% of the adjusted aggregate asset amount, thus effectively
increasing the amount of vehicles which are not subject to manufacturer repurchase programs that can
be included in the borrowing base under the ABS Program.
In connection with the Acquisition and the issuance of $3,550.0 million of floating rate U.S. Fleet Debt,
HVF entered into certain interest rate swap agreements, or the ‘‘HVF Swaps,’’ effective December 21,
2005, which qualify as cash flow hedging instruments in accordance with SFAS No. 133, ‘‘Accounting for
Derivative Instruments and Hedging Activities.’’ These agreements mature at various terms, in
connection with the scheduled maturity of the associated debt obligations, through November 2010.
Under these agreements, HVF pays monthly interest at a fixed rate of 4.5% per annum in exchange for
monthly amounts at one-month LIBOR, effectively transforming the floating rate U.S. Fleet Debt to fixed
rate obligations. HVF paid $44.8 million to reduce the fixed interest rate on the swaps from the prevailing
market rates to 4.5%. Ultimately, this amount will be recognized as additional interest expense over the
remaining terms of the swaps, which range from approximately 1 to 3 years. For the year ended
December 31, 2007, we recorded an expense of $20.4 million in our consolidated statement of
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