Hertz 2008 Annual Report Download - page 71

ITEM 1A. RISK FACTORS (Continued)
operating results and resources, we could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet our debt service and other obligations. The instruments
governing our indebtedness restrict our ability to dispose of assets and restrict the use of proceeds from
any such dispositions. We cannot assure you that we will be able to consummate those sales, or, if we
do, what the timing of the sales will be or whether the proceeds that we realize will be adequate to meet
debt service obligations when due.
A significant portion of our outstanding indebtedness is secured by substantially all of our
consolidated assets. As a result of these security interests, such assets would only be available to
satisfy claims of our general creditors or to holders of our equity securities if we were to become
insolvent to the extent the value of such assets exceeded the amount of our indebtedness and
other obligations. In addition, the existence of these security interests may adversely affect our
financial flexibility.
Indebtedness under our Senior Credit Facilities is secured by a lien on substantially all our assets (other
than assets of international subsidiaries and fleet), including pledges of all or a portion of the capital
stock of certain of our subsidiaries. Our Senior Notes and Senior Subordinated Notes are unsecured and
therefore do not have the benefit of such collateral. Accordingly, if an event of default were to occur
under our Senior Credit Facilities, the senior secured lenders under such facilities would have a prior
right to our assets, to the exclusion of our general creditors, including the holders of our Senior Notes
and Senior Subordinated Notes. In that event, our assets would first be used to repay in full all
indebtedness and other obligations secured by them (including all amounts outstanding under our
Senior Credit Facilities), resulting in all or a portion of our assets being unavailable to satisfy the claims of
our unsecured indebtedness. Furthermore, many of the subsidiaries that hold our U.S. and international
car rental fleets in connection with our asset-backed financing programs are intended to be bankruptcy
remote and the assets held by them may not be available to our general creditors in a bankruptcy unless
and until they are transferred to a non-bankruptcy remote entity. As of December 31, 2008, substantially
all of our consolidated assets, including our car and equipment rental fleets, have been pledged for the
benefit of the lenders under our Senior Credit Facilities or are subject to securitization facilities in
connection with our U.S. Fleet Debt, International Fleet Debt facilities and International ABS Fleet
Financing Facility and our other fleet debt facilities. As a result, the lenders under these facilities would
have a prior claim on such assets in the event of our bankruptcy, insolvency, liquidation or
reorganization, and we may not have sufficient funds to pay all of our creditors and holders of our
unsecured indebtedness may receive less, ratably, than the holders of our senior debt, and may not be
fully paid, or may not be paid at all, even when other creditors receive full payment for their claims. In that
event, holders of our equity securities would not be entitled to receive any of our assets or the proceeds
therefrom. See ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Financing.’’ As discussed below, the pledge of these
assets and other restrictions may limit our flexibility in raising capital for other purposes. Because
substantially all of our assets are pledged under these financing arrangements, our ability to incur
additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which
could have an adverse effect on our financial flexibility.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness
may adversely affect our financial flexibility.
Our Senior Credit Facilities and the indentures governing our Senior Notes and Senior Subordinated
Notes contain covenants that, among other things, restrict Hertz’s and its subsidiaries’ ability to:
• dispose of assets;
51