Hertz 2007 Annual Report Download - page 55

the affected series, rather than being reinvested in our car rental fleet. Certain other events, including
defaults by Hertz and its affiliates in the performance of covenants set forth in the agreements governing
the U.S. Fleet Debt, could result in the occurrence of a liquidation event pursuant to which the trustee or
holders of asset-backed notes of the affected series would be permitted to require the sale of the assets
collateralizing that series. Either of these consequences could affect our liquidity and our ability to
maintain sufficient fleet levels to meet customer demands.
Any disruption in our ability to refinance or replace our existing asset-backed financing or to continue to
finance new car acquisitions through asset-backed financing, or any negative development in the terms
of the asset-backed financing available to us, could cause our cost of financing to increase significantly
and have a material adverse effect on our financial condition and results of operations. The assets that
collateralize our asset-backed financing will not be available to satisfy the claims of our general creditors.
The terms of our Senior Credit Facilities permit us to finance or refinance new car acquisitions through
other means, including secured financing that is not limited to the assets of special purpose entity
subsidiaries. We may seek in the future to finance or refinance new car acquisitions, including cars
excluded from the ABS Program, through such other means. No assurances can be given, however, as
to whether such financing will be available, or as to whether the terms of such financing will be
comparable to the debt issued under the ABS Program.
Most of our asset-backed debt outside the United States was issued under an interim facility which
provided for increased margins if the debt was not refinanced by March 21, 2007. We are in the process
of negotiating new financing facilities to enable us to refinance this debt. However, we cannot assure you
that these efforts will be successful or, if they are successful, that the new facilities will enable us to
finance our operations at rates which are as favorable to us as those of the existing facility. On March 21,
2007, the existing facility was amended and restated to, among other things, modify the provisions
which provide for increased margins. The effect of these changes was to reduce or eliminate the adverse
consequences of these provisions to us for an interim period that ended on December 21, 2007 in order
to give us additional time to refinance the interim facility. As a result of the changes, there was no
increase in margins on March 21, 2007. On December 21, 2007, the existing facility was amended for the
purpose of (i) amending certain terms affecting the margins on the revolving bridge loan facilities
established by the SBFA, or the ‘‘Facilities,’’ and (ii) effecting certain technical and administrative
changes to the terms of the facilities. Additionally, the intercreditor deed pertaining to the International
Fleet Debt facilities was amended to, among other things, remove the Brazilian facility. We cannot assure
you that we will be able to refinance the interim facility on acceptable terms, if at all.
The third-party insurance companies that provide credit enhancements in the form of financial
guaranties of U.S. Fleet Debt could face financial instability due to factors beyond our control,
which in turn could have material adverse effects on our business.
MBIA and Ambac provide credit enhancements in the form of financial guaranties for our U.S. Fleet Debt,
with each providing guaranties for approximately half of the $4.3 billion in principal amount of the notes
issued under our ABS program in December 2005. MBIA and Ambac could face financial instability due
to factors beyond our control. Each of MBIA and Ambac is on review for a credit downgrade or has been
downgraded by one or more credit ratings agencies. If MBIA or Ambac were to experience further
downgrades, we may be required to utilize alternate sources of funding as our outstanding ABS notes
mature, which may not be available on terms as favorable or in amounts comparable to those available
to us under our existing ABS program.
An event of bankruptcy (as defined in the indentures governing the U.S. Fleet Debt) with respect to MBIA
or Ambac would constitute an amortization event under the portion of the U.S. Fleet Debt facilities
guaranteed by the affected insurer. In that event we would also be required to apply a proportional
amount, or substantially all in the case of insolvency of both insurers, of all rental payments by Hertz to its
special purpose leasing subsidiary and all car disposal proceeds under the applicable facility, or under
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