Hertz 2011 Annual Report Download - page 101

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
for these redemptions. Premiums paid are recorded in ‘‘Other (income) expense, net’’ on our
consolidated statement of operations.
In February 2011, Hertz issued $500 million aggregate principal amount of 6.75% Senior Notes due
2019. The 6.75% Senior Notes are guaranteed on a senior unsecured basis by the domestic subsidiaries
of Hertz that guarantee its Senior Credit Facilities. In March 2011, Hertz issued an additional $500 million
aggregate principal of the 6.75% Senior Notes due 2019. The proceeds of this March 2011 offering were
used in April 2011 to redeem $480 million principal amount of Hertz’s outstanding 8.875% Senior Notes
due 2014 which resulted in premiums paid during the year ended December 31, 2011, of $10.7 million
recorded in ‘‘Other (income) expense, net’’ on our consolidated statement of operations and the write-off
of unamortized debt costs of $5.8 million.
Hertz’s obligations under the indentures for the Senior Notes are guaranteed by each of its direct and
indirect domestic subsidiaries that is a guarantor under the Senior Term Facility. The guarantees of all of
the Subsidiary Guarantors may be released to the extent such subsidiaries no longer guarantee our
Senior Credit Facilities in the United States. HERC may also be released from its guarantee under certain
of the Senior Notes at any time at which no event of default under the indenture has occurred and is
continuing, notwithstanding that HERC may remain a subsidiary of Hertz.
The indentures for the Senior Notes contain covenants that, among other things, limit or restrict the
ability of the Hertz credit group to incur additional indebtedness, incur guarantee obligations, prepay
certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock
or making other distributions to parent entities of Hertz and other persons outside of the Hertz credit
group), make investments, create liens, transfer or sell assets, merge or consolidate, and enter into
certain transactions with Hertz’s affiliates that are not members of the Hertz credit group.
For further information on our indebtedness, see Note 4 to the Notes to our consolidated financial
statements included in this Annual Report under the caption ‘‘Item 8—Financial Statements and
Supplementary Data.’’
A significant number of cars that we purchase are subject to repurchase by car manufacturers under
contractual repurchase or guaranteed depreciation programs. Under these programs, car
manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the
cars during a specified time period, typically subject to certain car condition and mileage requirements.
We use book values derived from this specified price or guaranteed depreciation rate to calculate
financing capacity under certain asset-backed and asset-based financing arrangements.
In the event of a bankruptcy of a car manufacturer, our liquidity would be impacted by several factors
including reductions in fleet residual values and the risk that we would be unable to collect outstanding
receivables due to us from such bankrupt manufacturer. In addition, the program cars manufactured by
any such company would need to be removed from our financing facilities or re-designated as
non-program vehicles, which would require us to furnish additional credit enhancement associated with
these program vehicles. For a discussion of the risks associated with a manufacturer’s bankruptcy or our
reliance on asset-backed and asset-based financing, see ‘‘Item 1A—Risk Factors’’ included in this
Annual Report.
We rely significantly on asset-backed and asset-based financing arrangements to purchase cars for our
domestic and international car rental fleet. The amount of financing available to us pursuant to these
programs depends on a number of factors, many of which are outside our control, including recently
adopted legislation, proposed SEC rules and regulations and other legislative and administrative
developments. In this regard, there has been uncertainty regarding the potential impact of recently
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