Hertz 2010 Annual Report Download - page 58

ITEM 1A. RISK FACTORS (Continued)
their right to direct the trustee to foreclose on and sell vehicles to generate proceeds sufficient to repay
such debt.
The occurrence of certain events, including those described in the paragraph above, could result in the
occurrence of an amortization event pursuant to which the proceeds of sales of cars that collateralize the
affected asset-backed financing arrangement would be required to be applied to the payment of
principal and interest on the affected facility or series, rather than being reinvested in our car rental fleet.
The continuation of an amortization event for 30 days, as well as certain other events, including defaults
by us and our affiliates in the performance of covenants set forth in the agreements governing certain
fleet debt, could result in the occurrence of a liquidation event pursuant to which the trustee or holders of
the affected asset-backed financing arrangement would be permitted to require the sale of the assets
collateralizing that series. Any of these consequences could affect our liquidity and our ability to maintain
sufficient fleet levels to meet customer demands and could trigger cross-defaults under certain of our
other financing arrangements.
Any reduction in the value of the equipment rental fleet of HERC (which could occur due to a reduction in
the size of the fleet or the value of the assets within the fleet) could not only effectively increase our
equipment rental fleet costs and adversely impact our profitability, but would result in decreased
borrowing base availability under certain of our asset-based financing arrangements, which would have
a material adverse effect on our financial position, liquidity and results of operations.
Substantially all of our consolidated assets secure certain of our outstanding indebtedness, which
could materially adversely affect our debt and equity holders and our business.
Substantially all of our consolidated assets, including our car and equipment rental fleets, are subject to
security interests or are otherwise encumbered for the lenders under our asset-backed and asset-based
financing arrangements. As a result, the lenders under those 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 in full, or at all, all of our creditors or make any amount available to holders of our
equity. The same is true with respect to structurally senior obligations: in general, all liabilities and other
obligations of a subsidiary must be satisfied before the assets of such subsidiary can be made available
to the creditors (or equity holders) of the parent entity.
Because substantially all of our assets are encumbered under 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 a material adverse effect on our financial flexibility and force us to attempt to incur
additional unsecured indebtedness, which may not be available to us.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness
may materially adversely affect our financial flexibility or may have other material adverse effects
on our business, financial condition and results of operations.
Certain of our credit facilities contain covenants that, among other things, restrict Hertz’s and its
subsidiaries’ ability to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee
obligations; (iv) prepay other indebtedness or amend other financing arrangements; (v) pay dividends;
(vi) create liens on assets; (vii) enter into sale and leaseback transactions; (viii) make investments, loans,
advances or capital expenditures; (ix) make acquisitions; (x) engage in mergers or consolidations;
(xi) change the business conducted by us; and (xii) engage in certain transactions with affiliates.
Our Senior Term Facility includes financial covenants that require us to maintain a specified Corporate
debt to Corporate EBITDA (as defined below) leverage ratio and a specified Corporate EBITDA to
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