Hertz 2008 Annual Report Download - page 149

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
years, Ford and General Motors have experienced deterioration in their operating results and significant
declines in their credit ratings. In the event of a bankruptcy of a car manufacturer, including Ford or
General Motors, our liquidity would be impacted by several factors including reductions in fleet residual
values, and the risk that we would be unable to collect outstanding receivables due to us from such
bankrupt manufacturer. In addition, under the current terms of our asset-backed financing facilities, we
may be required to materially increase the enhancement levels regarding the fleet vehicles provided by
such bankrupt manufacturer. If we were required to provide this additional enhancement, we would use
a combination of our available cash, our availability under our Senior ABL Facility or any existing
over-enhancement that we may then have under our Fleet Financing Facilities. However, such use would
materially reduce our liquidity available for operations or the refinancing of maturing debt, which, in the
case of Ford or General Motors would have a material impact on our liquidity. For a detailed description
of the amounts we have available under our Senior ABL Facility and our Fleet Financing Facilities, see
Note 3—Debt.
Our U.S. fleet debt in the amount of approximately $4.1 billion at December 31, 2008 is guaranteed by
third party insurance companies, MBIA Insurance Corporation, or ‘‘MBIA’’ and Ambac Assurance
Corporation, or ‘‘Ambac’’. MBIA and Ambac are facing financial instability and have been downgraded
and are on review for further credit downgrade or under developing outlook by one or more credit
agencies. An event of bankruptcy with respect to MBIA or Ambac would result in an amortization event
under the portion of the debt guaranteed by the affected insurer, as more fully described Note 3—Debt.
In addition, if an amortization event continues for 30 days or longer, the noteholders of the affected series
of notes would have the right to require liquidation of a portion of the fleet sufficient to repay such notes,
provided that the exercise of the right was exercised by a majority of the affected noteholders. Based on
current information we do not currently believe that there is a near-term risk of bankruptcy of MBIA or
Ambac, nor do we expect the noteholders to exercise their liquidation right in the event of a bankruptcy.
However, in the event of a bankruptcy of either MBIA or Ambac and subsequent vote by the noteholders
to liquidate that portion of our fleet, we would expect to use the portion of our $825.0 million asset-
backed facility that is not insured by MBIA or Ambac that is then available, together with our corporate
liquidity, and possibly other funding sources, including car and equipment sales, to repay the affected
series of notes.
Certain events, such as a bankruptcy of one of the third-party insurance companies providing financial
guarantees with respect to our asset-backed notes or a manufacturer of a significant number of cars in
our fleet, or a continuing deterioration in the economic environment could lead to a deterioration in our
financial condition and liquidity position. In addition, although we believe it unlikely, in the case of the
combination of a bankruptcy of General Motors, Ford, MBIA or Ambac, if our available cash and other
funding sources were not sufficient to satisfy the consequences as described above, we would be
required to renegotiate with our lenders or raise additional funds and there is no assurance that we
would be successful in such renegotiation or the raising of such funds.
Principles of Consolidation
The consolidated financial statements include the accounts of Hertz Holdings and our wholly-owned
and majority-owned domestic and international subsidiaries. All significant intercompany transactions
have been eliminated.
Revenue Recognition
Rental and rental-related revenue (including cost reimbursements from customers where we consider
ourselves to be the principal versus an agent) are recognized over the period the revenue earning
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