Hertz 2008 Annual Report Download - page 163

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
MBIA and Ambac provide credit enhancements in the form of financial guarantees for our U.S. Fleet
Debt, with each providing guarantees for approximately half of the $4.1 billion in principal amount of the
notes that was outstanding as of December 31, 2008 under our ABS Program. Under these
arrangements, 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 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.
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
to protect the counterparties to the HVF Swaps in the event of an ‘‘amortization event’’ under the asset-
backed notes agreements. In the event of an amortization event, the amount by which the principal
balance on the floating rate portion of the U.S. Fleet Debt is reduced, exclusive of the originally
scheduled amortization, becomes the notional amount of the differential swaps, and is transferred to
Hertz. See Note 13—Financial Instruments.
HVF is subject to numerous restrictive covenants under the ABS Indenture and the other agreements
governing the U.S. Fleet Debt, including restrictive covenants with respect to liens, indebtedness, benefit
plans, mergers, disposition of assets, acquisition of assets, dividends, officers’ compensation,
investments, agreements, the types of business it may conduct and other customary covenants for a
bankruptcy-remote special purpose entity. The U.S. Fleet Debt is subject to events of default and
amortization events that are customary in nature for U.S. rental car asset-backed securitizations of this
type. The occurrence of an amortization event or event of default could result in the acceleration of
principal of the notes and a liquidation of the U.S. car rental fleet.
Series 2008-1 Notes. On September 12, 2008, HVF completed the closing of a new variable funding
note facility referred to as the Series 2008-1 Notes. This series is not subject to any financial guarantee.
The aggregate principal amount of such facility is not to exceed $825.0 million and such facility is
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