Hertz 2008 Annual Report Download - page 68

ITEM 1A. RISK FACTORS (Continued)
any such right is supported by a majority of the affected noteholders. If the master lease were terminated
due to the insolvency of either MBIA or Ambac, the termination would trigger an amortization event with
respect to the notes insured by the other insurer. Foreclosure of the vehicle fleet would have a material
adverse effect on our business, financial condition and results of operations. If such an event were to
occur, we would not be able to effect short-term borrowings under the variable funding notes issued at
the closing of the Acquisition, although we would be able to borrow on a short-term basis under the
Series 2008-1 Notes, subject to the borrowing base requirements of that facility. In addition, if our
available cash and other funding sources are 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.
The occurrence of an amortization event as a result of insurer insolvency would also result in our inability
to make use of the Like-Kind Exchange Program, which is described under ‘‘Item 7—Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Like-Kind Exchange
Program’’ in this Annual Report, with respect to future dispositions and acquisitions of fleet vehicles
subject to the ABS Program. This could expose us to increased income tax liability in the future as a
result of recognition of gains upon sales from our then-existing ABS Program fleet, although we would
expect to be able to utilize the Like-Kind Exchange Program for certain cars within our then-existing fleet
as well as future cars purchased outside of the ABS Program.
A limited liquidation event of default under the applicable indenture supplement governing the U.S. Fleet
Debt and any related foreclosure of the vehicle fleet could result in our inability to have access to other
facilities or could accelerate outstanding indebtedness under those facilities or other financing
arrangements.
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 $4,300.0 million of new debt (plus an additional $1,500.0 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 $600.0 million of Pre-Acquisition ABS
Notes, 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 $1,781.0 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 through 2010 and
the Pre-Acquisition ABS Notes have expected final payment dates ranging through 2009. Based upon
these repayment dates, this debt will need to be refinanced within the next two 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. Approximately half of our outstanding
U.S. Fleet Debt issued in connection with the Transactions is subject to the benefit of a financial
guarantee from MBIA, while the remainder is subject to the benefit of a financial guarantee from Ambac.
On July 24, 2008, we entered into the International ABS Fleet Financing Facility, which has an expected
maturity date of December 2010 and allows for maximum commitments under (i) the Euro-denominated
portion of e632.0 million (the equivalent of $880.8 million as of December 31, 2008) and (ii) the Australian
dollar-denominated portion of A$325 million (the equivalent of $223.7 million as of December 31, 2008).
Additionally, in September 2008, we issued but did not fund $825.0 million in the form of variable funding
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