Hertz 2007 Annual Report Download - page 147

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
The various series of U.S. Fleet Debt have either fixed or floating rates of interest. The interest rate per
annum applicable to any floating rate notes (other than any variable funding asset-backed debt) is based
on a fluctuating rate of interest measured by reference to one-month LIBOR plus a spread, although HVF
intends to maintain hedging transactions so that it will not be required to pay a rate in excess of 4.87%
per annum in order to receive the LIBOR amounts due from time to time on such floating rate notes. The
interest rate per annum applicable to any variable funding asset-backed debt is either the blended
average commercial paper rate, if funded through the commercial paper market, or if commercial paper
is not being issued, the greater of the prime rate or the federal funds rate, or if requisite notice is
provided, the Eurodollar rate plus a spread.
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. 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. See Note 13—Financial Instruments.
The U.S. Fleet Debt issued on the closing date of the Acquisition has the benefit of financial guaranty
insurance policies under which either MBIA Insurance Corporation or Ambac Assurance Corporation will
guarantee the timely payment of interest on and ultimate payment of principal of such notes.
In connection with the entrance into the HVF swaps, Hertz entered into seven differential interest rate
swap agreements, or the ‘‘differential swaps.’’ These differential swaps were required to be put in place
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