Hertz 2009 Annual Report Download - page 59

ITEM 1A. RISK FACTORS (Continued)
If certain insolvency related events were to occur with respect to Ambac or MBIA, we would be required
to apply a proportional amount of all rental payments by us to Hertz Vehicle Financing LLC or ‘‘HVF’’ and
all car disposition proceeds under the affected series of 2005 Notes, to pay down the amounts owed
under the affected series of 2005 Notes instead of applying those proceeds to purchase additional cars
and/or for working capital purposes. If these events continued for 30 days, holders of the affected series
of 2005 Notes would have the right to instruct the trustee to foreclose on our rental car vehicles in order
to generate proceeds to repay the principal amount of the affected series of 2005 Notes. If our available
cash and other funding sources, including the amounts then available under the Series 2009-1 Notes
and the Series 2009-2 Notes, were not sufficient to repay the affected series of 2005 Notes, 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. If any of the above occurs, it
could lead to consequences that have a material adverse effect on our liquidity, business, financial
condition and results of operations.
In addition, if the above events were to occur, it could result in our inability to have access to other
facilities or could accelerate outstanding indebtedness under those facilities or other financing
arrangements, any of which would have a material adverse effect on our financial condition and liquidity
position.
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. As of December 31, 2009, Hertz and several of its subsidiaries, including certain special
purpose entities, had an aggregate of $5.7 billion of rental car asset backed financing outstanding. We
expect, given our business plan, we will need to refinance approximately $1.2 billion of our international
fleet debt that matures in 2010 and we are currently in discussions with banks and lenders to review our
refinancing options. We cannot assure you that we will be able to complete such financings on terms
acceptable to us or on a timely basis, if at all; if we are unable to do so, our liquidity and interest costs
may be adversely affected. In addition, we expect that we will need to refinance approximately
$3.4 billion in other material asset-backed financing facilities during the next 36 months. If we are unable
to refinance or replace our existing asset-backed financing or continue to finance new car acquisitions
through asset-backed financing on favorable terms, or at all, our cost of financing could increase
significantly and have a material adverse effect on our liquidity, financial condition and results of
operations.
Substantially all of our consolidated assets have been pledged to secure certain of our outstanding
indebtedness.
As of December 31, 2009, 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. Moreover,
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
39