Hertz 2010 Annual Report Download - page 59

ITEM 1A. RISK FACTORS (Continued)
interest expense coverage ratio. Our Senior ABL Facility contains financial covenants that obligate us to
maintain a specified debt to Corporate EBITDA leverage ratio and a specified Corporate EBITDA to
Corporate fixed charges coverage ratio if we fail to maintain a specified minimum level of borrowing base
availability thereunder. Our ability to comply with these covenants will depend on our ongoing financial
and operating performance, which in turn are subject to, among other things, the risks identified in
‘‘—Risks Related to Our Business.’’
The agreements governing our financing arrangements contain numerous covenants. The breach of
any of these covenants or restrictions could result in a default under the relevant agreement, which can,
in turn, cause cross-defaults under our other financing arrangements. In such event, we may be unable
to borrow under the Senior ABL Facility and certain of our other financing arrangements and may not be
able to repay the amounts due under such arrangements. Therefore, we would need to raise refinancing
indebtedness, which may not be available to us on favorable terms, on a timely basis or at all. This could
have serious consequences to our financial condition and results of operations and could cause us to
become bankrupt or insolvent. Additionally, such defaults could require us to sell assets, if possible, and
otherwise curtail our operations in order to pay our creditors. Such alternative measures could have a
material adverse effect on our business, financial condition and results of operations.
An increase in interest rates or in our borrowing margin would increase the cost of servicing our
debt and could reduce our profitability.
A significant portion of our outstanding debt bears interest at floating rates. As a result, to the extent we
have not hedged against rising interest rates, an increase in the applicable benchmark interest rates
would increase our cost of servicing our debt and could materially adversely affect our liquidity and
results of operations.
In addition, we regularly refinance our indebtedness. If interest rates or our borrowing margins increase
between the time an existing financing arrangement was consummated and the time such financing
arrangement is refinanced, the cost of servicing our debt would increase and our liquidity and results of
operations could be materially adversely affected.
Risks Relating to Our Common Stock
Hertz Holdings is a holding company with no operations of its own and depends on its subsidiaries
for cash.
The operations of Hertz Holdings are conducted almost entirely through its subsidiaries and its ability to
generate cash to meet its debt service obligations or to pay dividends on its common stock is dependent
on the earnings and the receipt of funds from its subsidiaries via dividends or intercompany loans.
However, none of the subsidiaries of Hertz Holdings are obligated to make funds available to Hertz
Holdings for the payment of dividends or the service of its debt. In addition, certain states’ laws and the
terms of certain of our debt agreements significantly restrict, or prohibit, the ability of Hertz and its
subsidiaries to pay dividends, make loans or otherwise transfer assets to Hertz Holdings, including state
laws that require dividends to be paid only from surplus. If Hertz Holdings does not receive cash from its
subsidiaries, then Hertz Holdings financial condition could be materially adversely affected.
Our share price may decline if our Sponsors sell a large number of our shares or if we issue a large
number of new shares.
A majority of our outstanding shares are held by our Sponsors. We have a significant number of
authorized but unissued shares, including shares available for issuance pursuant to our various equity
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