Hertz 2011 Annual Report Download - page 133

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The covenants in the indentures for the Senior Notes also restrict Hertz and other members of the Hertz
credit group from redeeming stock or making loans, advances, dividends, distributions or other
restricted payments to any entity that is not a member of the Hertz credit group, including Hertz
Holdings, subject to certain exceptions.
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the
separate issuances of the 7.50% Senior Notes due October 2018, the 7.375% Senior Notes due January
2021 and the 6.75% Senior Notes due April 2019, Hertz agreed to file a registration statement under the
Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or,
in the alternative, the registered resale of such notes. The registration statement was declared effective
on August 19, 2011 and the exchange offers were consummated in September 2011.
See Note 17—Subsequent Events.
Promissory Notes
References to our ‘‘Promissory Notes’’ relate to our pre-2005 Acquisition promissory notes issued under
three separate indentures.
Convertible Senior Notes
References to our ‘‘Convertible Senior Notes’’ are to Hertz Holdings’ 5.25% Convertible Senior Notes
due June 2014. Our Convertible Senior Notes may be convertible by holders into shares of our common
stock, cash or a combination of cash and shares of our common stock, as elected by us, initially at a
conversion rate of 120.6637 shares per $1,000 principal amount of notes, subject to adjustment.
We have a policy of settling the conversion of our Convertible Senior Notes using a combination
settlement, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and
settling in shares the excess conversion value, if any. Proceeds from the offering of the Convertible
Senior Notes were allocated between ‘‘Debt’’ and ‘‘Additional paid-in capital.’’ The value assigned to the
debt component was the estimated fair value, as of the issuance date, of a similar debt instrument
without the conversion feature, and the difference between the proceeds for the Convertible Senior
Notes and the amount reflected as a debt liability was recorded as ‘‘Additional paid-in capital.’’ As a
result, at issuance the debt was recorded at a discount of $117.9 million reflecting that its coupon was
below the market yield for a similar security without the conversion feature at issuance. The debt is
subsequently accreted to its par value over its expected life, with the market rate of interest at issuance
being reflected in the statements of operations. The effective interest rate on the Convertible Senior
Notes on the issuance date was 12%.
On January 1, 2011, our Convertible Senior Notes became convertible. This conversion right was
triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading
days during the 30 consecutive trading day period ending on December 31, 2010. Since this same
trigger was met in the periods ending on March 31, 2011 and June 30, 2011, the Convertible Senior
Notes remained convertible through September 30, 2011. The Convertible Senior Notes became
convertible again on January 1, 2012 and will continue to be convertible until March 31, 2012, and may
be convertible thereafter, if one or more of the conversion conditions specified in the indenture is
satisfied during future measurement periods.
107