Hertz 2009 Annual Report Download - page 137

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MBIA and Ambac provide credit enhancements in the form of financial guarantees for our 2005 Notes,
with each providing guarantees for approximately half of the $2,871.6 million in principal amount of the
notes that were outstanding as of December 31, 2009 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. These agreements mature at various terms, in
connection with the scheduled maturity of the associated debt obligations, through November 2010.
Under these agreements, until February 2009, HVF was paying 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. In March 2009, HVF made a cash payment to have the fixed
rate on these swaps reset to the then current market rates of 0.872% and 1.25% for the swaps maturing
in February 2010 and November 2010, respectively. Additionally, a new hedging relationship was
designated between the HVF Swaps and the remaining $2,825.0 million of floating rate U.S. Fleet Debt.
See Note 12—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 12—Financial Instruments.
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.
In addition, on September 18, 2009, HVF entered into amendments to the series supplements relating to
its 2005 Notes. Among other things, the amendments with respect to each such series supplement add
new concentration limits and change existing concentration limits for vehicles manufactured by certain
manufacturers.
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.
In September 2009, HVF entered into amendments and restatements, of many of the agreements
relating to its U.S. asset-backed fleet debt, or collectively, the ‘‘U.S. Fleet Debt Program Documents,’’
including:
•the ABS Indenture;
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