Hertz 2007 Annual Report Download - page 54

Our reliance on asset-backed financing to purchase cars subjects us to a number of risks, many of
which are beyond our control.
We rely significantly on asset-backed financing to purchase cars for our domestic and international car
rental fleets. In connection with the Acquisition, a bankruptcy-remote special purpose entity wholly-
owned by us issued approximately $4,300 million of new debt (plus an additional $1,500 million in the
form of variable funding notes issued but not funded at the closing of the Acquisition) backed by our U.S.
car rental fleet under the ABS program. In addition, we issued $600 million of medium term notes backed
by our U.S. car rental fleet, or the ‘‘pre-Acquisition ABS Notes,’’ prior to the Acquisition, which remained
outstanding following the Acquisition. As part of the Acquisition, various of our non-U.S. subsidiaries and
certain special purpose entities issued approximately $1,781 million of debt under the International Fleet
Debt, which are secured by rental vehicles and related assets of certain of our subsidiaries (all of which
are organized outside the United States) or by rental equipment and related assets of certain of our
subsidiaries organized outside North America, as well as (subject to certain limited exceptions)
substantially all our other assets outside North America. The asset-backed debt issued in connection
with the Transactions has expected final payment dates ranging from 2008 to 2010 and the
pre-Acquisition ABS Notes have expected final payment dates ranging from 2008 to 2009.
Approximately half of our U.S. Fleet Debt is subject to the benefit of a financial guaranty from MBIA Inc.,
or ‘‘MBIA,’’ while the remainder is subject to the benefit of a financial guaranty from Ambac Financial
Group Inc., or ‘‘Ambac.’’ Based upon these repayment dates, this debt will need to be refinanced within
the next three years. Recent turmoil in the credit markets has reduced the availability of debt financing
and asset-backed securities have become the focus of increased investor and regulatory scrutiny.
Consequently, if our access to asset-backed financing were reduced or were to become significantly
more expensive for any reason, including as a result a deterioration in the markets for asset-backed
securities or as a result of deterioration in the credit ratings or the insolvency of the financial guarantors,
we cannot assure you that we would be able to refinance or replace our existing asset-backed financing
or continue to finance new car acquisitions through asset-backed financing on favorable terms, or at all.
Our asset-backed financing capacity could be decreased, or financing costs and interest rates could be
increased, as a result of risks and contingencies, many of which are beyond our control, including,
without limitation:
• the acceptance by credit markets of the structures and structural risks associated with our asset-
backed financing programs, particularly in light of recent developments in the markets for
mortgage-backed securities;
• rating agencies that provide credit ratings for our asset-backed indebtedness, MBIA and Ambac,
or other third parties requiring changes in the terms and structure of our asset-backed financing,
including increased credit enhancement (i) in connection with the incurrence of additional or
refinancing of existing asset-backed debt, (ii) upon the occurrence of external events, such as
changes in general economic and market conditions or further deterioration in the credit ratings
of our principal car manufacturers, including Ford and General Motors, or (iii) or otherwise;
• the terms, availability and credit market acceptance of third party credit enhancement at the time
of the incurrence of additional or refinancing of existing asset-backed debt or the amount of cash
collateral required in addition to or instead of such guaranties;
• the insolvency or deterioration of the financial condition of one or more of the third-party credit
enhancers that insure our asset-backed indebtedness, or downgrading of their credit ratings; or
• changes in law that negatively impact our asset-backed financing structure.
The occurrence of any of the events listed above could result, among other things, in the occurrence of
an amortization event pursuant to which the proceeds of sales of cars that collateralize the affected
series of asset-backed notes would be required to be applied to the payment of principal and interest on
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